What made America great was her unsurpassed ability to innovate.
Equally important was also her ability to rapidly adapt to the change that
this innovation fostered. For decades the combination has been a self
reinforcing growth dynamic with innovation offering a continuously
improving standard of living and higher corporate productivity levels,
which the US quickly embraced and adapted to.
This in turn financed further innovation. No country in the world could
match the American culture that flourished on technology advancements in
all areas of human endeavor. However, something serious and major has
changed across America. Daily, more and more are becoming acutely
aware of this, but few grasp exactly what it is. It is called Creative
Destruction.
It turns out that what made America great is now killing her!
Our political leaders are presently addressing what they perceive as an
intractable cyclical recovery problem when in fact it is a structural
problem that is secular in nature. Like generals fighting the last war
with outdated perceptions, we face a new and daunting challenge. A
challenge that needs to be addressed with the urgency and scope of a
Marshall plan that saved Europe from the ravages of a different type of
destruction. We need a modern US centric Marshall plan focused on growth,
but orders of magnitude larger than the one in the 1940’s. A plan even
more brash than Kennedy’s plan in the 60’s to put a man of the moon by the
end of the decade. America needs to again think and act boldly. First
however, we need to see the enemy. As the great philosopher Pogo said:
“I saw the enemy and it was I”.
The
news rocked the global gold market when an almost obscure line item in
the back of a 216 page document released by an equally obscure
organization was recently unearthed. Thrust into the unwanted glare of
the spotlight, the little publicized Bank of International Settlements
(BIS) is discovered to have accepted 349 metric tons of gold in a $14B
swap. Why? With whom? For what duration? How long has this been going
on? This raises many questions and as usual with all $617T of murky
unregulated swaps, we are given zero answers. It is none of our
business!
Considering the US taxpayer is bearing the burden of $13T in lending,
spending and guarantees for the financial crisis, and an additional $600B
of swaps from the US Federal Reserve to stem the European Sovereign Debt
crisis, some feel that more transparency is merited. It is particularly
disconcerting, since the crisis was a direct result of unsound banking
practices and possibly even felonious behavior. The arrogance and lack of
public accountability of the entire banking industry blatantly
demonstrates why gold manipulation, which came to the fore in recent CFTC
hearings, has been able to operate so effectively for so long. It operates
above the law or more specifically above sovereign law in the un-policed
off-shore, off-balance sheet zone of international waters.
Since President Richard Nixon took the US off the Gold standard in 1971,
transparency regarding anything to do with gold sales, leasing, storage or
swaps is as tightly guarded by governments as the unaudited gold holdings
of Fort Knox. Before we delve into answering what this swap may be all
about and what it possibly means to gold investors, we need to start with
the most obvious question and one that few seem to ask. Who is this Bank
of International Settlements and who controls it?
"As long as neither the monetary authority nor the fiscal
authority gives in, the deficit is financed by public debt
issuance. With the public-debt to GDP ratio rising without bound,
an eventual catastrophe occurs: the sovereign defaults and banks
holding large amounts of sovereign debt may collapse, triggering a
financial crisis and a deep slump. Following default, the fiscal
authority loses access to the government debt markets, at least
for a while. The resulting need to instantaneously balance the
government’s primary budget means sharp public spending cuts
and tax increases. This would be the "collision" outcome. The
outcome where the monetary authority gives in and monetises public
debt and deficits is called Fiscal Dominance. Monetary dominance
is the outcome where the fiscal authority gives in and cuts public
spending and/or raises taxes to stabilise or reduce the
public debt to GDP ratio to prevent a sovereign default."
Buiter
does a dramatic deconstruction of this theoretical principal to
the practicality of Europe, in a truly fascinating and must read
analysis. His conclusion is that the "analysis emphasises that the
Eurosystem can absorb much larger losses without risking its
solvency or undermining the effective pursuit of its price
stability target. We don’t, however, argue that the
resources of the Eurosystem should be used in this quasi-fiscal
manner. Openness, transparency and accountability suffer
when the central bank is used/abused for quasi-fiscal purposes,
and the legitimacy of the institution can be undermined."
Alas,
this only means that fiscal stimulus fundamentalists like Krugman
will now start pushing for monetary replacements to traditional
policy. And with that QE2 (and its myriad of imminent associated
alphabet soup programs) is even more of a certainty.
Beijing still controls the yuan, so last week's drop reflects a
policy decision. It is certain to infuriate hawks in Congress, who
have called a hearing on China's currency in mid-September.
Shrinking credit markets help explain why some Treasury yields are at
record lows...
Corporate-Bond Rally Killers
WSJ
Investors are fleeing to the safety of investment-grade corporate
bonds. But are they really as safe as people think?
Recent bond offerings seem especially risky. On July 28,
McDonald's sold $450 million of 10-year bonds with a coupon of
3.5%, just 0.55 percentage point more than the equivalent
Treasury. If corporate bond yields rise just one percentage point
over the next 12 months, owners of the McDonald's issue would
stand to lose 3.8%.
"You have very little cushion from interest-rate risk in that
security," says , the Los Angeles-based portfolio manager for the
, which has $4.2 billion under management. "I don't see a lot of
opportunity there."
What if the economy dips and another recession unfolds?
Treasury rates may well fall further—but even that might not help
corporate bonds. In a recession, earnings would suffer as
consumers spent less and businesses retrenched, making it more
difficult for companies to make their debt payments. And if
deflation followed, many companies would lose pricing power,
hurting profits all the more.
That possibility isn't priced into corporate bonds either, say
money managers.
"The pricing in the corporate market has gotten completely away
from the idea of credit impairment," says , portfolio manager for
the $1.8 billion .
About $185.3 billion was invested in bond funds in 2010
through July 31, according to
ICI. That’s the most for the first seven months of any year
since 1984, when ICI started compiling the data. The spending has
helped push the average investment- grade bond price to more than
110 cents on the dollar, the highest level in more than six years,
Bank of America Merrill Lynch index data show.
$118bn of high-cost ‘Trups’ can be redeemed over 90 days
STRUCTURED NOTES
In brief - there has been $25.85 billion in YTD structured
note issuance, and over $60 billion in global interest-linked note
volumes. An amusing excerpt from the brief: "Sales of notes linked
to wheat jumped this month after Russia’s worst drought in 50
years spurred a surge in the price of futures contracts on the
grain. Banks including DZ Bank AG and Royal Bank of Scotland Group
Plc, issued 82 wheat-linked warrants this month, compared with a
total of 159 in the first seven months of the year, according to
data compiled by Scoach, the structured products trading platform
run by Deutsche Boerse AG and Switzerland’s SWX Group. The listed
notes, called knock-out warrants, offer investors a leveraged way
to bet on the price of wheat." For all those who thought Wall
Street was dormant in the post-CDO implosion vacuum, this is a
rough wake up call - it appears no matter what, idiots and their
money are promptly parted, and the world's foremost financial
innovators will always find a way (and a product) to guarantee
that. And it is very refreshing to see that Germany's DZ Bank has
almost learned from the CDO bubble: the questionably solvent
German bank dominates the Structured Note market with $7.2 billion
in issuance to date, followed closely by such stalwarts of
financial stability as Barclays and Deutsche Bank.
America's baby boomers—those born between 1946 and 1964—face a
problem that could weigh on the economy for years to come: The
longer it takes for the economy to recover, the less money they'll
have to spend in retirement.
Policy makers have long worried that Americans aren't saving
enough for old age. And lately, current and prospective retirees
have been hit on many fronts at once: They have less money, they
earn less on what they have, their houses aren't rising in value
and the prospect of working longer to make up the shortfall has
dimmed significantly in a lousy job market.
"We will have to learn to make do with a lot less in material
things," says Gary Snodgrass, a 63-year-old health-care consultant
in Placerville, Calif. The financial crisis, he says, slashed his
retirement savings 40% and the value of his house by about half.
CHRONIC UNEMPLOYMENT
Startups Or Behemoths- Which Are We Going To Bet On TechCrunch
Kauffman Foundation has done extensive research on job
creation. Kauffman Senior Fellow Tim Kane
analyzed 620 ? 620:true); MAX-WIDTH: 620px; FLOAT: none; HEIGHT: 12px; VISIBILITY: visible; MAX-HEIGHT: 2000px; TOP: auto; LEFT: auto; cssFloat: none">
a new data set from the U.S. government, called
Business
Dynamics Statistics 620 ? 620:true); MAX-WIDTH: 620px; FLOAT: none; HEIGHT: 12px; VISIBILITY: visible; MAX-HEIGHT: 2000px; TOP: auto; LEFT: auto; cssFloat: none">,
which provides details about the age and employment of businesses
started in the U.S. since 1977. What this showed was that
startups aren’t just an important contributor to job growth:
they’re the only thing. Without startups, there would be no net
job growth in the U.S. economy. From 1977 to 2005, existing
companies were net job destroyers, losing 1 million net jobs per
year. In contrast, new businesses in their first year added an
average of 3 million jobs annually.
When analyzed by company age, the data are
even more startling. Gross job creation at startups averaged more
than 3 million jobs per year during 1992–2005, four times as high
as any other yearly age group. Existing firms in all year groups
have gross job losses that are larger than gross job gains.
Half of the startups go out of business within five years; but
overall they are still the ones that lead the charge in employment
creation. Kauffman Foundation
analyzed 620 ? 620:true); MAX-WIDTH: 620px; FLOAT: none; HEIGHT: 12px; VISIBILITY: visible; MAX-HEIGHT: 2000px; TOP: auto; LEFT: auto; cssFloat: none">
the average employment of all firms as they age from year zero
(birth) to year five. When a given cohort of startups reaches age
five, its employment level is 80 percent of what it was when it
began. In 2000, for example, startups created 3,099,639 jobs. By
2005, the surviving firms had a total employment of 2,412,410, or
about 78 percent of the number of jobs that existed when these
firms were born.
America’s biggest — and only major — jobs program is the
U.S. military.
- Over 1,400,000 Americans are now on active duty; - another 833,000 are in the reserves, many full
tim - Another 1,600,000 Americans work in companies that supply the military with
everything from weapons to utensils. (I’m not even including all the foreign
contractors employing non-US citizens.)
If we didn’t have this giant military jobs program, the U.S. unemployment rate
would be over 11.5 percent today instead of 9.5 percent.
And without our
military jobs program personal incomes would be dropping
faster. The Commerce Department reported Monday the only major
metro areas where both net earnings and personal incomes rose
last year were San Antonio, Texas, Virginia Beach, Virginia,
and Washington, D.C. — because all three have high
concentrations of military and federal jobs.
This isn’t an argument for more military spending. Just the
opposite. Having a giant undercover military jobs program is
an insane way to keep Americans employed. It creates jobs we
don’t need but we keep anyway because there’s no honest
alternative. We don’t have an overt jobs program based on
what’s really needed.
For example, when Defense Secretary Robert Gates announced
Monday his plan to cut spending on military contractors by
more than a quarter over three years, congressional leaders
balked. Military contractors are major sources of jobs back in
members’ states and districts. California’s Howard P. “Buck”
McKeon, the top Republican on the House Armed Services
Committee, demanded that the move “not weaken the nation’s
defense.” That’s congress-speak for “over my dead body.”
Gates simultaneously announced closing the Joint Force
Command in Norfolk, Virginia, that employs 6,324 people and
relies on 3,300 private contractors. This prompted Virginia
Democratic Senator Jim Webb, a member of the Senate Armed
Services Committee, to warn that the closure “would be a step
backward.” Translated: “No chance in hell.”
Gates can’t even end useless weapons programs. That’s
because they’re covert jobs programs that employ thousands.
He wants to stop production of the C-17 cargo jet he says
is no longer needed. But it keeps 4,000 people working at
Boeing’s Long Beach assembly plant and 30,000 others at Boeing
suppliers strategically located in 40 states. So despite
Gates’s protests the Senate has approved ten new orders.
That’s still not enough to keep all those C-17 workers
employed, so the Pentagon and Boeing have been hunting for
foreign purchasers. The Indian Air Force is now negotiating to
buy ten, and talks are underway with several other nations,
including Oman and Saudi Arabia.
Ever wonder why military equipment is one of America’s
biggest exports? It’s our giant military jobs program in
action.
Gates has also been trying to stop production of a
duplicate engine for the F-25 joint Strike Fighter jet. He
says it isn’t needed and doesn’t justify the $2.9 billion
slated merely to develop it. But the unnecessary
duplicate engine would bring thousands of jobs to Indiana and
Ohio. Cunningly, its potential manufacturers Rolls-Royce and
General Electric created a media blitz (mostly aimed at
Washington, D.C. where lawmakers wold see it) featuring an
engine worker wearing a “Support Our Troops” T-shirt and
arguing the duplicate engine will create 4,000 American jobs.
Presto. Despite a veto threat from the White House, a House
panel has just approved funding the duplicate.
By the way, Gates isn’t trying to cut the overall Pentagon
budget. He just wants to trim certain programs to make room
for more military spending with a higher priority. The
Pentagon’s budget — and its giant undercover jobs program —
keeps expanding. The President has asked Congress to hike
total defense spending next year 2.2 percent, to $708 billion.
That’s 6.1 percent higher than peak defense spending during
the Bush administration. This sum doesn’t even include
Homeland Security, Veterans Affairs, nuclear weapons
management, and intelligence. Add these, and next year’s
national security budget totals about $950 billion.
That’s a major chunk of the entire federal budget. But most
deficit hawks don’t dare cut it. National security is
sacrosanct. Yet what’s really sacrosanct is the giant
jobs program that’s justified by national security. National
security is a cover for job security. Wouldn’t it be
better to have a jobs program that created things we really
need — like light-rail trains, better school facilities,
public parks, water and sewer systems, and non-carbon energy
sources — than things we don’t, like obsolete weapons systems?
Historically some of America’s biggest jobs programs that
were critical to the nation’s future have been justified by
national defense, although they’ve borne almost no relation to
it. The National Defense Education Act of the late 1950s
trained a generation of math and science teachers. The
National Defense Highway Act created millions of construction
jobs turning the nation’s two-lane highways into four- and
six-lane Interstates. Maybe this is the way to convince
Republicans and blue-dog Democrats to spend more federal
dollars putting Americans back, and working on things we
genuinely need: Call it the National Defense Full Employment
Act.
The most obvious source of distress right now is lack of
payroll growth, and it's likely to get worse. Real unemployment
today is well above the headline number of 9.5%. That number held
steady only because 1,115,000 people gave up hope of finding work
and left the labor force in the last three months. Otherwise the
headline unemployment rate would have been around 10.4%.
Now there are at least 14.5 million Americans still searching
for work: 1.4 million of them have been jobless for more than 99
weeks, 6.5 million have been jobless for over 27 weeks. This is a
stunning reflection of the longer-term unemployment we are coping
with.
The unemployment numbers are worse than reported. Last year the
Labor Department admitted it over-counted the number of jobs by
1.4 million. Why? Because they used a computer program that tries
to extrapolate how many new companies are being created during
each month and then estimates the number of jobs these firms
should be creating. They were wrong.
Since April, the Labor Department has counted 550,000
nonexistent jobs under this so-called birth/death series. Without
these phantom jobs, the economy this year created virtually no
jobs—certainly not the 600,000 the administration has been
touting.
The Obama administration projects the unemployment rate will
drop to 8.7% by the end of next year and 6.8% by 2013. That is
totally unrealistic. It means we would have to add nearly 300,000
jobs a month over the next three years. At the rate we're going,
it will take anywhere from six to nine years to climb out of this
hole. The labor market may be improving, but the pace is glacial.
A growing breed of start-up investors dubbed "super angels" is
rapidly raising new money—and ratcheting up competition with
established venture capitalists.
What most professionals can’t
understand is why the dollar is being dumped. It is not
because it is mired in debt and bankrupt. It is not because
other nations will lose 2/3’s of 60% of their foreign
reserves. It is because those in power behind the scenes want
world government and a global central bank based on the use of
the SDR, Special Drawing Right, or the bancor. This would end
up with a loss of sovereignty for all nations, plus no
individual monetary or fiscal policies. All decisions would be
in the hands of some one-world Illuminist bureaucrat. You
would be abandoning the world’s fiat currencies, excepting the
euro, which is partially gold backed, for another fiat
currency such as the SDR, or the bancor. How can that present
an improvement? Look at the mess that bureaucrats have made of
the euro zone and the EU. Look at how the European elitists
had to get a constitution passed and then it wasn’t even a
constitution. It was some kind of agreement to subjugate
Europeans -an agreement that most of the inhabitants of Europe
voted against.
If the SDR or the bancor becomes a
world currency the decisions, not only financial, monetary and
fiscal, will be made in some foreign country, perhaps in
Brussels, NYC or London. Decisions that will affect everything
you do. Those policies will control every facet of your life.
You will become controlled and enslaved.
The attempted changes could come
next yr or in 2 or 3 years, but they are coming, if you allow
them to come.
You ask what will work if the
dollar no longer is the world reserve currency? We see the
best alternative in an index of G-50 currencies weighed by
financial conditions in each country backed by somewhere
between 15% and 25% in gold. Nothing less will work.
Unfortunately, the people in charge behind the scenes will
never allow that to happen again, because they cannot control
such a gold backed currency. Fractional banking would be
limited to nine times deposits or less. That means no massive
speculation on inside information. They will no longer be able
to screw the public and create bubbles and busts on a whim.
This is what these creatures are up too. Do not underestimate
them, they will do everything they can to have a world
currency and you will pay for it dearly.
Worse yet, everything the
administration has done has been disastrous. They do not even
want to talk about their successes because the public lowers
their ratings almost every day. A financial regulations bill
that makes the privately owned Federal Reserve a financial
monopoly and dictatorial power. This is all bad, but do not
forget he doesn’t make the decisions. They are made by the
CFR-types behind the scenes that are running scared. Half want
stimulus and the other half want depression. This is a mess,
but it was predicable. Talk radio, the Internet and a handful
of newspapers, magazines and newsletters have been raising
havoc with elitist plans. The public is learning the truth and
it is killing the insiders. That is why you are seeing vicious
attacks on anyone that is effective, such as many attacks on
radio programs that we appear on. Desperate people do
desperate things and that is the vise that the shadow
government is in presently. If you had any doubts why are gold
and silver and commodities rising and the dollar falling? It
is because the stimulus program was a failure and the geniuses
behind the scenes do not know what to do. It’s inflate or die.
If these one-worlders lose they lose everything just as they
did when the Lombard system collapsed in 1348. This is where
this is all headed and they are terrified and they should be.
Perceptions of the market are
dreadful. 72% of the volume is front running, which happens to
be illegal, known as black box trades. The public has been a
major share seller for the last year and one-half. Why is the
market rising again? It is called, “The President’s Working
Group on Financial Markets,” which works 24/7 manipulating
markets worldwide to serve the goals of those who want world
government, a world currency and a world bank.
The change in
price between the AM Fix and the PM Fix are cumulatively making a trend which is
increasingly losing money in a very strong bull market! Clearly the fixes are
not being set to “clear the market” but are being manipulated to suppress the
gold price. In figure 3 the same chart as figure 2 is shown but with the
right-hand scale inverted.
Figure 3:
Same Chart as Figure 2 with Right-hand Scale Inverted
What this shows
is that the more gold rises over night in essentially Asian markets the more it
is sold down into the PM fix. This was exactly the modus operandum of the London
Gold Pool but now it is being done covertly.
The
suppression of the gold price is achieved in three main “theaters
of war”:
1) The LBMA unallocated gold dealing is a
fractional reserve operation with a reserve of probably less than
3%. This is largely a paper gold market that masquerades as a
physical gold market. Palming off the unsuspecting investor with
unallocated gold with a very low reserve ratio prevents the
investor’s money from chasing real physical bullion which
inherently acts as a price suppression mechanism (see my recent
article
Proof of Gold Price Suppressionfor
more details).
2) For the investors who insist on having
physical bullion it is important to suppress the price to dissuade
them from thinking it is a good investment. As demonstrated in
this article this is done by selling gold into the PM Fix to
counter the rise in the price that occurs in the physical markets
of Asia. This is exactly the same tactics as employed by the
London Gold Pool of the 1960’s.
3) The large bullion
banks, most notably JPMorgan Chase and HSBC sell short on the
Comex inviting other commercials to join in the short selling
binge to create frequent waterfall drops that wipe out speculators
and serve as a cold shower for those who are bold enough to make
leveraged bets that gold prices will rise.
Additional and
complementary measures include the establishment of largely
unbacked Gold Exchange Traded Funds (ETF) that serve to divert
demand away from the real metal. OTC derivatives that are used to
hedge the essentially naked short exposure that exists by virtue
of the fractional reserve nature of the massive unallocated gold
market.
The London Gold Pool failed due to insufficient
gold to meet demand. In those days the paper market was not as
dominant. By contrast it is through selling massive amounts of
paper gold that the gold cartel has managed to keep the lid on its
current price suppression scheme. But therein they have
unwittingly planted the seeds of their own demise. I estimate that
45 ounces of gold have been sold in unallocated accounts for every
one ounce that exists in the vaults. When just a fraction of these
investors ask for their gold there will be a run on the bullion
banks of epic proportions. When 45 claims go looking for one ounce
of physical gold the rise in bullion prices will be breathtaking.
If you own unallocated bullion you likely only have a
claim to about 2.3% of what you think you own. The window of
opportunity to get your investment to be 100% bullion is closing
rapidly.
This article has shown that physical gold is
being dumped into the PM Fix to contain its price in a covert
version of the 1960’s London Gold Pool. The result of the failure
of the London Gold Pool to suppress gold was an appreciation of
the gold price from $35/oz to $850/oz; a similar percentage today
would carry gold to almost $30,000/oz. This is not a price
forecast but an indication that when free market forces have been
frustrated by market manipulation for a very long time the
equilibrium price can be many multiples of the suppressed price
and the rise is typically rapid when the suppression is overcome.
There are many growing signs that suggest the
gold manipulation scheme is coming unraveled.
The onset of an epic “gold rush” is fast approaching
VIDEO TO WATCH
QUOTE OF THE WEEK
"the recent financial crisis and recession was not caused
by high interest rates but by low rates that contributed to
excessive debt and leverage among consumers, businesses and
government. We need to get off of the emergency rate of zero,
move rates up slowly and deliberately. This will align more
closely with the economy’s slow, deliberate recovery so that
policy does not lag the recovery.
Monetary policy is a
useful tool, but it cannot solve every problem faced by the
United States today. In trying to use policy as a cure-all, we
will repeat the cycle of severe recessionand unemployment in a
few short years by keeping rates too low for too long. I wish
free money was really free and that there was a painless way
to move from severe recession and high leverage to robust and
sustainable economic growth, but there is no short cut."
Thoma Hoenig Kansas City Federal Reserve
President FULL SPEECH
ZH - Zero Hedge - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important
investment commitments.
