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Dollar on the Decline, Gold and Silver on the Rise
by: Peter Cooper December 17, 2008
Fed interest rates close to zero mark a new stage in the evolution of the US financial crisis, and the accompanying statement suggested that we may have rates at this level for a long period like Japan in the 90s.
Even the most cursory glance at the US dollar chart shows a double-top and the dollar rally now looks to be definitely over. Given the inverse relationship with the gold price we can equally be sure that the yellow metal will shortly test its March highs again.
Silver up too
Silver has also bounced on the Fed rate cut but generally lags behind advances in the gold price, only to sprint up with out performance later in the rally.
After the nasty dollar rally this summer, which decimated many precious metal portfolios, this is a welcome respite for investors in this asset class. My prediction of a Gold:Dow ratio of one in 2009 looks a step closer to fulfillment.
It is clear that the US is going to use dollar devaluation as a key part of its recovery strategy, as bond holders ought to realize. At some point there will be a big rotation out of dollar assets and into a currency without government control like gold which can not be printed.
Zero coupon
Certainly there is little point in holding cash or bonds for their ability to earn income which gold can not. Investors could choose to buy equities instead but the economic outlook for 2009-10 is truly awful and price-to-earnings ratios are only a useful guide to share valuations if companies actually continue to make profits.
However, share prices may advance on a more inflationary outlook as bailouts and stimulus packages emerge, and in that case precious metal stocks are going to be the best ones to own, particularly the explorers.
Anybody checking their precious metal stocks today can see how they leveraged the gold price advance on the rate cut last night. This will continue to be the case.
great chart - would like to see...
Gold bust through 860 and close around 875 today. One of these days we are gonna get that $100 move up IMO - maybe before the end of the year.
dollar faltering - gold and silver rising...
money printing presses running all out and fed saying more to come - inflation being promoted as the solution to our economic woes---------this could be the big one Elizabeth (said in the voice of Fred Sanford).
Gold could have an even more incredible run than in the early 80's - where stocks like DROOY went from $8 to over $500!!!
Never know.
TRGD.PK - any thoughts??? Know it used...
to be discussed here and up on the iBox. They have been selling assets but still have Don Ramon - and other assets in tact.
thinking about picking some up as chart looks promising with tight bolingers, near lows, and fundamentals of their product are improving every day.
selling at $0.042.
SVRCF up 22% today - bought some FRMSF...
nice silver plays IMO.
and here's Roubini saying yesterday...
that he is indeed in favor of a large stimulus:
It is welcome news that the stimulus package will most likely be in the $500-700bn range and that it will target productive investment in infrastructure, public services and green technology. However, a fiscal stimulus will not prevent a severe recession at this point – the U.S. economy is officially already in recession since Q4 2007 – but will make the recession shorter and less severe than it would otherwise have been.
cat fight - Schiff says Roubini "doesn't understand"...
how to fix the crisis and is only being sought ought by Washington politicians because they like his prescription to solve the crisis, i.e., stimulus packages and more government - while Schiff's prescription is to let free markets run their course and less government.
Schiff comes on almost exactly 1/2 way through this broadcast: http://radio.goldseek.com/GSRplayer12.13.08.php
Schiff says buy commodities and gold. Jim Rogers comes later at about the 3/4 mark.
nice, clear post on inflation coming...
and why-----November 24, 2008, 7:34 am
Guest Post: Inflation Should Be Just Around the Corner
Amid signs of expected deflation, Peter Boone and Simon Johnson argue that the world must begin reflation soon. Boone is chairman of Effective Intervention, a U.K.-based charity, and a research associate at the Centre for Economic Performance, London School of Economics, and Johnson is a former IMF chief economist, and is currently a professor at MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. They run the economic crisis Web site http://BaselineScenario.com.
Last week’s stock market collapse – and the latest bailout round for Citigroup yesterday – makes it clear America’s greatest banks are still in deep trouble. But the news is actually worse and much more global. The prices of securitized residential and commercial mortgages reached new all time lows, and most commodity prices continued their rout. The same pattern was seen in European and Asian markets. The default risk priced into Irish, Greek and Italian sovereign bonds continued to rise, raising questions about the viability of the eurozone. There is even a larger question mark hanging over Switzerland’s financial viability due to its highly leveraged large banks. The main star performer of last week was gold, while long bonds rallied as investors anticipated deflation.
This downward spiral of asset prices is creating potential insolvencies on a massive scale. The natural private sector response is to cut spending and try to repay debts. Citigroup’s announcement that it will dismiss roughly 50,000 employees to contain costs is just one example; similar announcements are being made around the world, and piecemeal over-the-weekend “rescues” will do nothing to stop this.
Governments are trying to offset the private sector contraction. They offer to backstop potentially insolvent banks, provide more benefits to the unemployed, raise expenditures, and increase budget deficits. In essence, governments are risking their good balance sheets to limit the damage from “bad” private balance sheets. For some nations, there are already signs that this strategy could backfire in a serious way. For example, Ireland – the first country to guarantee all liabilities of its banking sector – saw its market implied risk of sovereign default (within five years) rise from 12% to 18% in just one week.
Last week’s events parallel the early pattern during the Great Depression. The main difference is, compared to the onset of the Depression, we have already embarked on enormous measures to prevent financial collapse, and, so far, these appear to be failing. In economics, ever since Milton Friedman and Anna Schwartz’s great Monetary History of the United States, we have been taught that overly tight monetary policy was a major factor explaining the Depression – so much so that Ben Bernanke even once apologized on behalf of the Fed for that mismanagement. Now, we can’t help but have a nagging concern that, perhaps, all that teaching was not quite right. Perhaps the events of 1929 produced an unstoppable whirlwind of deleveraging which no set of policy measures would truly be able to prevent.
We can be sure that deflation will only make our situation worse. If prices actually fall around the world, the solvency problems of banks, households with mortgages, indebted corporates, and most sovereigns, will continue to worsen. A falling price level would be associated with lower asset prices and reduced collateral value for loans, while the nominal liabilities remain fixed. This opens greater holes in balance sheets and reinforces the downwards spiral. Further, falling prices mean both long and short interest rates are low – a flat yield curve. This would exacerbate the financial sector’s problems as its lending becomes less profitable.
It is now imperative that strong actions prevent deflation, and we should use monetary and fiscal policy to start our reflation. There are some people who think this is not possible: in the midst of rising unemployment and large excess capacity around the world, how can we get prices to rise?
In a brilliant speech in November 2002, Ben Bernanke outlined a game plan to prevent deflation, and it is far more relevant now than it was then. We are already well down his proposed road. He called for open market operations to lower interest rates, and suggested the Federal Reserve could directly lend to corporates and other non-banks if needed. None of this, so far, has worked. His next suggestion was to finance new tax cuts and spending increases with money printed by the Federal Reserve. If the money is spent, the economy should start to recover, and the added spending along with easy money just might be enough to raise prices. We have not tried that in earnest yet, but we should and likely will. Over the weekend we heard confirmation of Larry Summers’ earlier hints regarding a $500-700 billion spending plan under Obama – this makes sense if it is accompanied with aggressive monetary expansion. The goal should be to aim too big, not too small.
Unlike fiscal policy, which encourages other countries to “free ride” on any US expansion, the attraction of US monetary expansion is that it will force a global response. When the US expands its money supply, so putting pressure on the dollar to weaken, Asia and the UK will quickly follow suit to prevent their currencies from strengthening.
Already, the Bank of England is rapidly reducing rates and talking down the pound. They understand that the only way out of their crisis, which is arguably worse than in the US, is to cheapen the price of money quickly and encourage depreciation relative to trading partners. Most Asian nations continue to manage exchange rate policy so their currencies weaken, or at least stay stable, relative to the dollar. While the eurozone will lag, its deep economic and institutional problems mean they cannot afford a strong euro. The ECB must soon cut interest rates sharply and follow along.
If President Obama’s team and Mr. Bernanke do manage to instigate a strong global monetary expansion, with newly rising prices, we might just arrest the downward spiral of asset prices and solvency. The collateral value underlying loans and mortgages will rise, or at least stop falling, and the yield curve will steepen – making banks more profitable. This would change the fundamental solvency of our entire financial system, households, and the government. We need to have significant inflation: 2% is not enough to improve solvency significantly, and we may experience 5-10% for a year or two. Inflation has major drawbacks and creates its own risks, but compared to the alternatives, it would be a relief.
And it would also make the latest round of bailouts more justifiable. Tim Geithner, the incoming Secretary of the Treasury, was at the table with Citigroup this weekend, and he knows better than anyone the actual and contingent liabilities taken on by the government over the past year. This approach to financial sector bailouts will prove very expensive to taxpayers and may not work unless we have significant inflation. The early signs all suggest the Obama team is confident that enough inflation will produce recovery and ultimately protect the government’s balance sheet.
But let us be honest. Attempting to increase inflation may not work, particularly if private sector spending does not respond. The policy response that is in the works is likely to be massive. But what we have already seen over the past 12 months is unprecedented and – to date – not very effective.
So what do markets think? Last week they weren’t sure. At the close on Friday, inflation linked bonds priced in only 0.2% average inflation for the next ten years; this sounds like a deflationary spiral. However, the world’s oldest inflation hedge – gold – rose sharply, suggesting that some investors think we will soon be successfully inflating. Let’s hope the gold market is right.
Schiff again - writing up a storm lately-->
December 12, 2008
A Nightmare Before Christmas
Like many pragmatic economists I have always warned that rapid expansions of government debt would result in inflation and higher interest rates. The explanation was always simple: rising supply of government debt inflates the money supply and weakens the government’s ability to service its debt through legitimate means.
But In recent months, government has flooded the market with hundreds of new Treasury obligations and telegraphed its intention to increase the deluge even more. In response, both bond prices and the dollar have risen. This benign reaction has led many to the happy conclusion that the doom and gloomers are wrong and that bailouts and economic “stimuli” can be financed with deficit spending without any adverse consequences on interest rates or consumer prices. Recent action in the foreign exchange markets suggests these hopes will prove illusory. The renewed strength in gold, together with the long over do rupture of the correlation between the movements of foreign currencies and U.S. equities, is further evidence that recent market dynamics are changing.
When the financial crisis of 2008 kicked into high gear in September, the U.S. dollar began to rally furiously. While America’s economic ship was sinking from stem to stern, its currency was becoming the must have asset for public and private investors around the world. The dollar benefitted from the positive flows that result from massive global deleveraging. Treasuries got an added boost from a reflexive flight to “safety.” As a result, politicians were able to fill out their Christmas wish lists with complete confidence that Santa would deliver. However, as these dollar-positive forces appear to be giving way, the Grinch is about make an unwanted appearance.
Last weekend Barack Obama announced his intention to implement a New Deal-style stimulus and public works program. What he somehow forgot to mention is that the United States is wholly dependent on the willingness of foreign creditors to supply the funds. But a weakening dollar makes continued foreign purchase of U.S. Treasuries a much more difficult decision.
Once the dollar begins to collapse beneath the weight of all this new deficit spending, accumulation of contingency liabilities, and the socialization of our economy, commodity prices and interest rates will head skyward. In addition, once all the going out of business sales at U.S. retailers are over, and excess inventories have been reduced, watch for big price increases at the consumer level as well.
Once the government runs out of foreign and private sector bidders for new treasuries, the Federal Reserve will be the only buyer, and the hyper-inflation cat will be completely out of the bag. Sensing this, the Fed has recently indicated a desire to begin issuing its own bonds. However, since dollars are already recorded as liabilities on the Fed’s balance sheet (dollars are in actuality Federal Reserve Notes) the Fed already issues debt. The difference now is that they are proposing to issue interest bearing debt. Perhaps the Fed feels this will make holding its notes more appealing. However, since the interest will be paid in more of its own script, I do not believe this con will work.
In the end, rather than filling our stockings with Christmas goodies, our foreign creditors will likely substitute lumps of coal. Of course given how high coal prices will ultimately rise as a result of all this inflation, in Christmas Future perhaps our stockings will be stuffed with nothing but our own worthless currency. It might night burn as well as coal, but at least we will have plenty of it.
my take is if NXG can pop...
above $1 it soon goes to $1.50 where it may stall - until eventually heading higher - all provided gold holds steady or moves up. Skies the limit if gold goes above $1,000 IMO - which is what makes gold miners an exciting play at these levels.
thanks - like the concept of investing...
in silver by buying companies that do both silver and gold - like CDE and SVRCF.
Precious metals had a good week - looking for continuation as miners should outperform overall market IMO.
likely polled people who...
enjoyed losing their jobs just in time for X-mas so they can spend more time with the kids playing the new Wii they charged to their overextended credit cards.
Just wanted to see how it felt posting sarcastically.
exactly - kind of makes you wonder...
if they are even watching gold and the macro environment. Duh.
largest holding is Kinross KGC...
so nice to see it on the list. Great job on highlighting at least 2 picks in the top 20.
Do you have a favoritie silver pick - looking at several and would appreciate any insights you have on silver. TIA
bought some silver via the special...
offer - thanks to those who brought the deal to our attention. If nothing else, they provide some level of assurance and will make great gifts to kids who love shining coins - lol. Keep it up.
Goldman raises gold and silver forecasts on anticipated dollar weakening
Goldman Sachs is raising its gold and silver price forecasts in line with its economists' expectations on weaker dollar outlook and as havens from risk.
[check their numbers - they are behind already and I believe way off - $795????. They seem to be "Reacting" more than "forecasting"!!!]
Posted: Friday , 12 Dec 2008
LONDON (Reuters) -
Goldman Sachs (GS.N) said it is raising its near-term gold and silver forecasts on expectations for a weaker dollar, and as interest in the precious metal as a haven from risk continues to underpin prices.
The bank said it has raised its three-month gold forecast to $700 an ounce from $690, its six-month price view to $785 from $730 and its 12-month forecast to $795 from $710.
It sees silver at $10.04 an ounce in three months, up from a previous forecast of $9.90, at $11.08 an ounce in six months, against $10.30, and at $10.30 in 12 months, against $9.20.
"We are raising our gold price forecasts in line with Goldman Sachs economists' currency revisions toward a weaker U.S. dollar outlook," the bank said in a research note.
"We have long held that gold trades inversely with the U.S. dollar, which historically has explained over 90 percent of gold price movements," it said.
Gold, which is often bought as a currency hedge, often benefits from weakness in the dollar.
The current turmoil in the financial markets and worries over the outlook for the global economy are also likely to boost the precious metals' appeal as a haven from risk, Goldmans added.
"We believe that the pervasive negative sentiment surrounding most financial assets may continue to support gold prices at the margin," it said.
Spot gold <XAU=> was quoted at $817.20/819.20 an ounce at 0925 GMT, while silver <XAG=> was at $10.19/10.27 an ounce. (Reporting by Jan Harvey; Editing by James Jukwey)
did do some research on elements...
and notes before buying and didn't give that much thought - but it does give some pause since many banks are having issues - to say the least.
Guess I need to determine who the sponsor is and their degree of safety/solvency.
RJI from elements site - where I first spotted it.
http://www.elementsetn.com/RICI-Total-Return-ETN.aspx
Here's a list of the elements partners - which all seem top notch. http://www.elementsetn.com/PartnersPage.aspx
Still need to do more research on.
Schiff's latest: Don't be Fooled by the Market
Peter Schiff, President and Chief Global Strategist
With the dollar rallying, foreign stocks swooning, and commodity prices plummeting, many have concluded that the trends that I have been championing over the past decade have reversed. However, as is often the case over the short term, market behavior can easily fool the majority of investors. I am convinced that this is just one of those occasions.
For most of this decade, while my investment recommendations were benefitting from the trends I had forecast, critics erroneously suggested that my dire view of the U.S. economy was costing my clients money. More recently, as the U.S. economy has begun to collapse like the house of cards that I always said it was, my investment thesis has not performed as I would have expected. The panic unleashed by the magnitude of America's troubles has caused global stock and currency markets to behave senselessly. For the moment, fundamentals are not driving valuations.
I must confess that when many of the bulls I had been debating for years finally adopted my investment strategy, I was a bit worried that the trades were getting crowed. In hindsight, one can argue that I should have been more concerned that the accelerated fall in the dollar and the rise in commodities in late 2007 and early 2008 had brought in so many short term speculators that reversals were likely. But the fundamentals for the dollar remained so horrendous to me that those concerns could never gain the upper hand.
But with so many dilettante investors (who had jumped belatedly onto the foreign stock and commodity bandwagon in 2006 and 2007) now flushed from the market, the stage is set for huge rallies in both sectors. Since many of these investors were chasing trends they never really understood, they have fled at the first sign of trouble. This is par for the course in bull markets, as corrections are designed to shake loose the weakest players. This particularly includes leveraged speculators, who typically over-extend themselves on the rallies.
Just as they dismissed my economic forecasts for years, my critics are now making the same mistakes with respect to my investment strategy. Their justifications are recycled. Most investment analysts can only see what is happening in the present. As a result, they draw long-term conclusions from short-run events.
However, it should be obvious by now that doing the right thing often means going against the crowd. As this massive recession gets underway it's important to recall just how many people allowed this elephant to sneak up on them. The delusion was shocking, and it still is. What are the chances that these visionaries finally have it right?
There were also those who joined me in warning of a pending economic collapse, but advised investors to remain in cash (usually defined as U.S. dollars). For years, while the dollar tanked and foreign markets soared, these individuals appeared wrong on the economy and wrong on investments. While at the moment they can now claim complete vindication, if they stay in dollars too long, their victory will be hollow. While U.S. Treasuries are set to win the gold, silver and bronze in the 2008 investment Olympics, I do not expect a repeat performance in 2009. This is just another example of short-term movements incorrectly being given long-term significance.
However, most who saw this disaster coming now foresee a deflationary spiral, where the world economy crumbles, commodity and consumer goods prices collapse, and the dollar reigns supreme. This group is just as wrong now as was the Goldilocks crowd with respect to the U.S. economy a few years ago.
Based on the recent poor performance of my investment recommendations, many claim that I had been blinded by arrogance. They said the same in years past about my views on internet stocks, housing, and the U.S. economy. The fact that my conviction has not been shaken by short-term market action or popular sentiment is not a sin of arrogance but of confidence. The difference is crucial. Arrogance is confidence without knowledge. But if you know the facts, and understand the dynamics, then knowledge justifies confidence.
Now, I certainly admit that with the benefit of hindsight, it would have been better to have sold our foreign stocks and sidestepped this correction. However, I do not accept that my failure to do so invalidates my strategy. While I certainly warned that both foreign stocks and commodity prices could correct as the severity of America's economic problems became more evident (and I clearly advised that investors hold some cash reserves and physical gold to profit from such a correction), the only thing I truly missed was the sharp bear market rally in the dollar. This has made the short-term correction in foreign stocks much more severe then I had anticipated.
My take was that U.S. government's response to the crises would be so inflationary and so detrimental to the long-term health of our economy, that it would overwhelm any temporary boost the dollar would get from deleveraging. Here my error was my overestimation of the market's ability to comprehend the long term inflationary effects of a massive expansion of money supply. The irony here is that while the government is acting even more irresponsibly than I had forecast, the dollar has managed to rally in the face of it!
However, the case for foreign stocks has never been better. Not only are valuations at historic lows, but given the recent fall in global interest rates, relative values are more compelling than ever. In the final analysis only time will tell if I am correct, and investors need to study the facts and draw their own conclusions on the best way to apply them. Both the good and the bad news is that I do not believe we will be waiting too much longer for the answer.
waking up to gold and silver spike...
gold at $828 - silver at $10.42
Gold looks like may pop $800...
again today - hope it holds above this time. I do tend to think all lower gaps get filled in charts - problem is it can be many years before those gaps get filled - seen it time and time again. No way all higher gaps get filled - seen lots of companies gap down several times on their way to zero - filling of gaps in charts is just not a good indicator of price direction.
bought some RJI today...
ELEMENTS Rogers Intl Commodity ETN
The investment seeks to replicate, net of expenses, the Rogers International Commodity Index – Total Return index. The index represents the value of a basket of 35 commodity futures contracts.
http://www.rogersrawmaterials.com/page1.html
inflation or deflation - here's...
one interesting chart that shows a recent shift as forecasted by treasuries - his take "You can interpret this either as the bond market smelling a repeat of 1930s deflation or late 1970s inflation times two or three. Hoover or FDR? Pick your poison. I expect Hoover then FDR, disinflation then inflation ala late 1970s but more extreme, to deflate the debt."
One of his top recommendations, you guessed it = Gold.
another name goes up on Predictors...
of the Crisis" list. Eric Janszen - itulip founder with book on bubble popping. How does he say to invest in this downturn - the winner again is Gold.
Breaking News - Obama unveils portions of...
Economic Recovery Plan - the 21st Century New Deal:
http://www.politico.com/news/stories/1208/16258.html
any opinions on a good silver...
company to invest in - preferably on a foreign exchange. I bought a little SST.V - but took a cautious approach. Also have SLV and CEF. Bought a little bit of CTOHF - Citigold = Australian gold miner: http://www.citigold.com/index.asp
Still have some money to throw at a silver company but also still consider myself a rookie at evaluating miners - although getting better. TIA.
As America Goes...
INVESTOR'S BUSINESS DAILY
Posted 12/5/2008
Globalism: The experts said China and India were the new economic "juggernauts" — strong, independent and insulated even from America's financial woes. The experts were wrong.
The Chinese and Indian economies are in a free fall, proving that when America booms, the world booms; and conversely, when she sneezes, the world catches a cold. Stripped of all the hype, the "China Miracle" now looks more mirage, and the "Shining India" rather dull. Both countries, it turns out, have been desperately dependent on America for their growth.
Nearly 60% of China's total exports are churned out by plants not owned by the Chinese but by American and other Western companies. And they're now starting to close them. The resulting layoffs have been so massive that dislocated workers are rioting.
At a factory in Dongguan that makes Nerf toys for U.S.-based Hasbro Inc., some 500 workers battled security guards, turned over a police car, smashed the headlights of police motorcycles and forced their way through the factory's front gate.
Some 3 million Chinese have already been fired in the industrial province of Zhejiang alone. Millions more layoffs will follow by Christmas, the World Bank predicts, as China grinds to its slowest growth in two decades.
It's a far cry from 2005, when the media breathlessly predicted the "communist economic juggernaut" would "challenge the West."
"It's an article of faith in the West that democracy and free enterprise must exist hand in hand," said U.S. News & World Report in a special cover report. "China is teaching the West something new."
Meanwhile in India, the economy is sliding into crisis mode, with dislocated workers also turning violent. After Jet Airways, India's biggest private airline, laid off 1,900, a large crowd of workers stormed the airline's headquarters in Mumbai to vent their anger.
Though less export-dependent than China, key sectors of the Indian economy are exposed to the U.S. recession. The business outsourcing industry is particularly vulnerable due to its dependence on our crippled financial sector.
The Indian employment base relies heavily on the U.S. for call-center jobs, as well as those involving technical support. India's software industry is also taking a beating.
The U.S.-led global recession smashes the myth that Asian economies have become so powerful their batteries no longer need charging by the American economy.
Never before has a country risen as fast a China. And it may fall just as fast. As foreign direct investment slows to a trickle, all the talk of economic hegemony shifting to China and India won't seem so authoritative. Many best-selling books have been predicated on this false assumption, however, and more are in the pipeline.
All this good press must be going to China's head. In Beijing last Thursday, U.S. Treasury Secretary Hank Paulson was lectured by Chinese officials to get America's economic house in order. Among others, Zhou Xiaochuan, governor of the Chinese central bank, called for a rebalancing of the American economy.
"Overconsumption and high reliance on credit is the cause of the U.S. financial crisis," he said. "As the largest and most important economy in the world, the U.S. should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits."
According to the Financial Times, the tone of the comments reflected "an underlying shift in power" — a shift that's also been detected by a senior fellow at the Brookings Institution. "One result of the crisis," Eswar Prasad told the FT, "is that the U.S. no longer holds the high ground to lecture China on financial or macroeconomic policies."
What the financial crisis and U.S. recession have really exposed is the Big Lie. Far from posing a threat to our economy, China and India have proved to be paper tigers dependent on corporate America. As America goes, so still goes the world — in bad times as in good.
As America Goes...
INVESTOR'S BUSINESS DAILY
Posted 12/5/2008
Globalism: The experts said China and India were the new economic "juggernauts" — strong, independent and insulated even from America's financial woes. The experts were wrong.
Read More: East Asia & Pacific
The Chinese and Indian economies are in a free fall, proving that when America booms, the world booms; and conversely, when she sneezes, the world catches a cold. Stripped of all the hype, the "China Miracle" now looks more mirage, and the "Shining India" rather dull. Both countries, it turns out, have been desperately dependent on America for their growth.
Nearly 60% of China's total exports are churned out by plants not owned by the Chinese but by American and other Western companies. And they're now starting to close them. The resulting layoffs have been so massive that dislocated workers are rioting.
At a factory in Dongguan that makes Nerf toys for U.S.-based Hasbro Inc., some 500 workers battled security guards, turned over a police car, smashed the headlights of police motorcycles and forced their way through the factory's front gate.
Some 3 million Chinese have already been fired in the industrial province of Zhejiang alone. Millions more layoffs will follow by Christmas, the World Bank predicts, as China grinds to its slowest growth in two decades.
It's a far cry from 2005, when the media breathlessly predicted the "communist economic juggernaut" would "challenge the West."
"It's an article of faith in the West that democracy and free enterprise must exist hand in hand," said U.S. News & World Report in a special cover report. "China is teaching the West something new."
Meanwhile in India, the economy is sliding into crisis mode, with dislocated workers also turning violent. After Jet Airways, India's biggest private airline, laid off 1,900, a large crowd of workers stormed the airline's headquarters in Mumbai to vent their anger.
Though less export-dependent than China, key sectors of the Indian economy are exposed to the U.S. recession. The business outsourcing industry is particularly vulnerable due to its dependence on our crippled financial sector.
The Indian employment base relies heavily on the U.S. for call-center jobs, as well as those involving technical support. India's software industry is also taking a beating.
The U.S.-led global recession smashes the myth that Asian economies have become so powerful their batteries no longer need charging by the American economy.
Never before has a country risen as fast a China. And it may fall just as fast. As foreign direct investment slows to a trickle, all the talk of economic hegemony shifting to China and India won't seem so authoritative. Many best-selling books have been predicated on this false assumption, however, and more are in the pipeline.
All this good press must be going to China's head. In Beijing last Thursday, U.S. Treasury Secretary Hank Paulson was lectured by Chinese officials to get America's economic house in order. Among others, Zhou Xiaochuan, governor of the Chinese central bank, called for a rebalancing of the American economy.
"Overconsumption and high reliance on credit is the cause of the U.S. financial crisis," he said. "As the largest and most important economy in the world, the U.S. should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits."
According to the Financial Times, the tone of the comments reflected "an underlying shift in power" — a shift that's also been detected by a senior fellow at the Brookings Institution. "One result of the crisis," Eswar Prasad told the FT, "is that the U.S. no longer holds the high ground to lecture China on financial or macroeconomic policies."
What the financial crisis and U.S. recession have really exposed is the Big Lie. Far from posing a threat to our economy, China and India have proved to be paper tigers dependent on corporate America. As America goes, so still goes the world — in bad times as in good.
T-Bonds, Gold Led ETFs In November
BY TRANG HO
INVESTOR'S BUSINESS DAILY
Posted 12/2/2008
Treasuries, gold, and leveraged inverse oil and chips led ETFs in November, as bears pummeled the bulls for a third-straight month.
Vanguard Extended Duration Treasury (EDV) jumped 22.33%. Its indicated yield is now 2.7%.
Market Vectors Gold Miners (GDX) soared 27.56%. PowerShares DB Gold Double Long ETN (DGP) surged 27.21%.
PowerShares DB Crude Oil Double Short ETN (DTO), which makes money from falling prices, rocketed 41.27%. Its opposite, PowerShares DB Crude Oil Double Long ETN, plunged 30.61%.
UltraShort Semiconductor Pro-Shares (SSG) popped 27.18%.
Utilities, telecom, nuclear energy and wind energy were the few sectors to post modest gains of 4% or less. The worst-hit sectors: coal, chips, solar energy and REITS, all lost 20% or more.
On the international front, Market Vectors Russia (RSX) sank 21.54%. iShares MSCI South Korea Index (EWY) fell 16.97%, while NETS Hang Seng China Enterprises (SNO) gained 9.60%.
Of the three most widely traded and largest ETFs by assets, SPDR S&P 500 (SPY) slumped 7.15%, PowerShares QQQQ (QQQQ) dropped 11.07% and Financial Select Sector SPDR (XLF) fell 18.48%.
"There have only been five times in history that the market has been in the condition it is in now, and it's snapped back every time," said Michael Turner, president of TurnerTrends, an asset manager and stock adviser. "We're in a way-oversold condition."
The Dow, which closed at 8419 Tuesday, could easily rally to 9500 but not to its previous high of 14,000, he said.
About 80% of Turner's assets are currently parked in cash, but he plans to dollar-cost average in and become fully invested over the next five to six weeks.
But if the Dow falls below 7500, Turner said he would have to rethink whether he would continue buying while the market falls further.
Among a dozen ETFs that Turner believes will shoot higher over the next 18 months are Ultra Oil & Gas ProShares (DIG), Market Vectors Gold Miners (GDX), Market Vectors Steel (SLX), iShares MSCI Germany (EWG), iShares S&P Latin America 40 (ILF) and iShares MSCI Emerging Markets (EEM).
"They have the least resistance to doubling on a market rebound," Turner said.
Inflows And Outflows
ETFs continued to take market share from mutual funds in November. Investors pulled $66.6 billion out of mutual funds the past month and poured $17.6 billion into ETFs, according to TrimTabs Investment Research estimates.
Total ETF assets increased 4.4% to $393.7 billion in the month. Year to date, ETFs pulled in $105.9 billion, an increase of 26.8%, Trim-Tabs estimates. Meanwhile, investors took $238.7 billion out of mutual funds year to date, leaving the universe with $3.935 trillion in assets.
"This is the first significant challenging time that people have turned to ETFs," said Tom Lydon, editor of ETFTrends.com. "When the market turns, ETFs are going to get more than their fair share of cash on the sidelines."
The ETF from which investors pulled the most money, $532 million, was UltraShort Financials Pro-Shares (SKF), according to TrimTabs.
ETFs with the greatest rate of inflow were SPY with $4.9 billion, iShares MSCI EAFE (EFA) $1.4 billion and Energy Select Sector SPDR (XLE) $1.3 billion.
ETF providers added 35 new funds in November, bringing the total number of exchange traded products to 840, according to Barclays Global Investors (see Long View above). No ETFs shuttered last month, but five are slated to stop trading by year's end.
thanks to all - believe going to order...
from both ebay and APMEX. Should get orders placed this weekend after do a little more research.
John Maynard Keynes: The Abridged Version
by Robert Reich
The notion that government deficits may be good has an odd ring these days. For most of the past two decades, America's biggest worry has been inflation brought on by excessive demand. Inflation soared into double digits in the 1970s, budget deficits ballooned in the '80s, Bill Clinton got great credit for erasing the deficit in the '90s, and George W. Bush then pushed deficits up again. But some 60 years ago, when 1 out of 4 adults couldn't find work, the problem was lack of demand. That old problem is now re-emerging.
Where do can we find guidance? One source: John Maynard Keynes.
Some background (via a piece I wrote several years ago):
Keynes hardly seemed cut out to be a workingman's revolutionary. A Cambridge University don with a flair for making money, a graduate of England's exclusive Eton prep school, a collector of modern art, the darling of Virginia Woolf and her intellectually avant-garde Bloomsbury Group, the chairman of a life-insurance company, later a director of the Bank of England, married to a ballerina, John Maynard Keynes — tall, charming and self-confident — nonetheless transformed the dismal science into a revolutionary engine of social progress.
Before Keynes, economists were gloomy naysayers. "Nothing can be done," "Don't interfere," "It will never work," they intoned with Eeyore-like pessimism. But Keynes was an unswerving optimist. Of course we can lick unemployment! There's no reason to put up with recessions and depressions! The "economic problem is not — if we look into the future — the permanent problem of the human race," he wrote (liberally using italics for emphasis).
Born in Cambridge, England, in 1883, the year Karl Marx died, Keynes probably saved capitalism from itself and surely kept latter-day Marxists at bay.
His father John Neville Keynes was a noted Cambridge economist. His mother Florence Ada Keynes became mayor of Cambridge. Young John was a brilliant student but didn't immediately aspire to either academic or public life. He wanted to run a railroad. "It is so easy ... and fascinating to master the principles of these things," he told a friend, with his usual modesty. But no railway came along, and Keynes ended up taking the civil service exam. His lowest mark was in economics. "I evidently knew more about Economics than my examiners," he later explained.
Keynes was posted to the India Office, but the civil service proved deadly dull, and he soon left. He lectured at Cambridge, edited an influential journal, socialized with his Bloomsbury friends, surrounded himself with artists and writers and led an altogether dilettantish life until Archduke Francis Ferdinand of Austria was assassinated in Sarajevo and Europe was plunged into World War I. Keynes was called to Britain's Treasury to work on overseas finances, where he quickly shone. Even his artistic tastes came in handy. He figured a way to balance the French accounts by having Britain's National Gallery buy paintings by Manet, Corot and Delacroix at bargain prices.
His first brush with fame came soon after the war, when he was selected to be a delegate to the Paris Peace Conference of 1918-19. The young Keynes held his tongue as Woodrow Wilson, David Lloyd George and Georges Clemenceau imposed vindictive war reparations on Germany. But he let out a roar when he returned to England, immediately writing a short book, The Economic Consequences of the Peace.
The Germans, he wrote acerbically, could not possibly pay what the victors were demanding. Calling Wilson a "blind, deaf Don Quixote" and Clemenceau a xenophobe with "one illusion — France, and one disillusion — mankind" (and only at the last moment scratching the purple prose he had reserved for Lloyd George: "this goat-footed bard, this half-human visitor to our age from the hag-ridden magic and enchanted woods of Celtic antiquity"), an outraged Keynes prophesied that the reparations would keep Germany impoverished and ultimately threaten all Europe.
His little book sold 84,000 copies, caused a huge stir and made Keynes an instant celebrity. But its real import was to be felt decades later, after the end of World War II. Instead of repeating the mistake made almost three decades before, the U.S. and Britain bore in mind Keynes' earlier admonition. The surest pathway to a lasting peace, they then understood, was to help the vanquished rebuild. Public investing on a grand scale would create trading partners that could turn around and buy the victors' exports, and also build solid middle-class democracies in Germany, Italy and Japan.
Yet Keynes' largest influence came from a convoluted, badly organized and in places nearly incomprehensible tome published in 1936, during the depths of the Great Depression. It was called "The General Theory of Employment, Interest and Money."
Keynes' basic idea was simple. In order to keep people fully employed, governments have to run deficits when the economy is slowing. That's because the private sector won't invest enough. As their markets become saturated, businesses reduce their investments, setting in motion a dangerous cycle: less investment, fewer jobs, less consumption and even less reason for business to invest. The economy may reach perfect balance, but at a cost of high unemployment and social misery. Better for governments to avoid the pain in the first place by taking up the slack.
Keynes had a hard sell, even in the depths of the Depression. Most economists of the era rejected his idea and favored balanced budgets. Most politicians didn't understand his idea to begin with. "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist," Keynes wrote.
In the 1932 presidential election, Franklin D. Roosevelt had blasted Herbert Hoover for running a deficit, and dutifully promised he would balance the budget if elected.
Keynes' visit to the White House two years later to urge F.D.R. to do more deficit spending wasn't exactly a blazing success. "He left a whole rigmarole of figures," a bewildered F.D.R. complained to Labor Secretary Frances Perkins. "He must be a mathematician rather than a political economist." Keynes was equally underwhelmed, telling Perkins that he had "supposed the President was more literate, economically speaking."
As the Depression wore on, Roosevelt tried public works, farm subsidies and other devices to restart the economy, but he never completely gave up trying to balance the budget. In 1938 the Depression deepened. Reluctantly, F.D.R. embraced the only new idea he hadn't yet tried, that of the bewildering British "mathematician." As the President explained in a fireside chat, "We suffer primarily from a failure of consumer demand because of a lack of buying power." It was therefore up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation."
Yet not until the U.S. entered World War II did F.D.R. try Keynes' idea on a scale necessary to pull the nation out of the doldrums — and Roosevelt, of course, had little choice. The big surprise was just how productive America could be when given the chance. Between 1939 and 1944 (the peak of wartime production), the nation's output almost doubled, and unemployment plummeted — from more than 17% to just over 1%.
Never before had an economic theory been so dramatically tested. Even granted the special circumstances of war mobilization, it seemed to work exactly as Keynes predicted. The grand experiment even won over many Republicans. America's Employment Act of 1946 — the year Keynes died — codified the new wisdom, making it "the continuing policy and responsibility of the Federal Government ...to promote maximum employment, production, and purchasing power."
And so the Federal Government did, for the next quarter-century. As the U.S. economy boomed, the government became the nation's economic manager and the President its Manager in Chief. It became accepted wisdom that government could "fine-tune" the economy, pushing the twin accelerators of fiscal and monetary policy in order to avoid slowdowns, and applying the brakes when necessary to avoid overheating. In 1964 Lyndon Johnson cut taxes to expand purchasing power and boost employment. "We are all Keynesians now," Richard Nixon famously proclaimed. Americans still take for granted that Washington has responsibility for steering the economy clear of the shoals, although it's now usually the Fed chief rather than the President who carries most of the responsibility.
Keynes had no patience with economic theorists who assumed that everything would work out in the long run. "This long run is a misleading guide to current affairs," he wrote early in his career. "In the long run we are all dead."
several views...
Risk of Stagflation vs. Deflation:
ML: Global policy reaction to the financial crisis has been so aggressive,determined and persistent, that it is highly likely we avoid deflation, and eventually end up with higher inflation.To paraphrase Minsky, "fears of deflation are inflationary"
GS: The opening up of spare capacity has been historically associated with significant downward pressure on inflation. Given that we expect spare capacity to continue to increase at least till Q4 2009, inflation is unlikely to be a serious issue
Roubini: U.S. and global economy are at risk of a severe stag-deflation. A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labor markets from rising unemployment will control labor costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1% level that leads to concerns about deflation
CA: Great Moderation and combination of downward shocks (oil, property, financial) to growth will slow inflation. Stagflation unlikely because wages are no longer indexed to inflation like in 1970s when second round effects led to inflation persistence
MS: Inflation will be lower in the near term but there is now high risk of high inflation in the long term. Why? 1) It is doubtful that policymakers will be able and willing to quickly and fully reverse easing when things stabilize. 2) The likely sharp rise in government debt in several countries should increase political pressures on central banks to keep interest rates low. 3) If potential GDP growth has slowed a lot, global recession will not create as much slack and disinflationary pressures as is widely believed
JPMorgan: It's normal for inflation to lag behind growth for quarters after global economy moves from strength to weakness. Slowing growth means slowing inflation eventually. Currency depreciation may lead to higher imported inflation in emerging markets
Comparisons with 1970s Great Stagflation:
Like the 1970s, 1) inflation was driven higher by commodities with negative supply shocks (though this time coming from poor weather, trade barriers and environmental regulations rather than OPEC) and 2) growth is slowing globally led by U.S.
Unlike the 1970s, 1) no wage-price spiral, 2) no Nixonian price controls in the U.S. (but controls do exist elsewhere), 3) commodity price rises also due to positive demand shock, 4) credit crisis and asset deflation in developed world spreading globally, 5) falling inflation in developed world
Reich says spend away: The Rebirth of Keynes, and the Debate to Come
Robert Reich | Nov 29, 2008
The economy has just about come to a standstill – not so much because credit markets are clogged as because there’s not enough demand in the economy to keep it going. Consumer spending has fallen off a cliff. Investment is drying up. And exports are dropping because the recession has now spread around the world. So are we about to return to Keynesianism? Hopefully. Government is the spender of last resort, which means the new Obama administration should probably be considering a stimulus package in the range of $600 billion, roughly 4 percent of national product -- focused on building and repairing the nation’s crumbling infrastructure, providing help to states to maintain services, and investing in new green technologies in order to wean the nation off oil.
But between now and late January, when the stimulus package will be voted on, we're likely to be treated to a great debate over the wisdom of Keynesianism. Fiscal hawks will claim government is already spending way too much. Even without the stimulus package, next year's budget deficit is likely to be in the range of $1.5 trillion, considering the shrinking economy and what’s being spent bailing out Wall Street. The hawks also worry that post-war baby boomers are only a few years away from retirement, meaning that the costs of Social Security and Medicare will balloon.
What the hawks don’t get is what John Maynard Keynes understood: when the economy has as much underutilized capacity as we have now, and are likely to have more of in 2009 and 2010 (in all likelihood, over 8 percent of our workforce unemployed, 13 percent underemployed, millions of houses empty, factories idled, and office space unused), government spending that pushes the economy to fuller capacity will of itself shrink future deficits.
Conservative supply-siders, meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They're wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend.
Even if a rebate could be fashioned for the middle class, it wouldn't do much good because, as we saw from the last set of rebate checks, people tend to use extra cash to pay off debts rather than buy goods and services. Besides, individual purchases wouldn't generate nearly as many American jobs as government spending on infrastructure, social services, and green technologies, because so much of we as individuals buy comes from abroad.
So the government has to spend big time. The real challenge will be for government to spend it wisely -- avoiding special-interest pleadings and pork projects such as bridges to nowhere. We’ll need a true capital budget that lays out the nation’s priorities rather than the priorities of powerful Washington lobbies. How exactly to achieve this? That's the debate we should be having between now and January 20 or 21st.
have about $300 want to spend on gold...
coins as X-mas gift - would like as several smaller denomination coins if possible.
Anyone have suggestions on best place to buy for ensured quality and still get a good deal. OK to get delivered shortly after X-mas since can give card and have them delivered to their house. Thanks.
Commodity Fundamentals Are ‘Unimpaired,’ Rogers Says
By Nigel Stevenson and Brett Foley
Dec. 5 (Bloomberg) -- The fundamentals of commodities are “unimpaired” and prices will rebound when a lack of new supply leads to shortages, said Jim Rogers, chairman of Rogers Holdings.
“Commodities will be the place to be if and when we come out of” the downturn, Rogers said yesterday in an interview from Miami. “The only thing where fundamentals are unimpaired are commodities. Farmers cannot get loans for fertilizer now. Nobody can get a loan to open a zinc mine. So we are going to have some serious, serious supply problems before too much longer.”
The Reuters/Jefferies CRB Index of 19 commodities has plunged 53 percent from a record in July on concern that a global recession will sap demand for raw materials. The index almost doubled between its low in 2001 and the end of last year.
Rogers said crude oil and agricultural commodities were the most likely to have shortages and the outlook for zinc and cotton had “improved.” “I haven’t sold any commodities since the bull market began,” he said.
“I own some gold and if gold goes down I’ll buy some more and if gold goes up I’ll buy some more,” Rogers said. “Gold during the course of the bull market, which has several more years to go, will go much higher.”
Gold for immediate delivery has tripled since its low in 2001. It’s still 25 percent below the record $1,032.70 an ounce reached in March.
‘Unfathomable’
Rogers also said that while he owned platinum through index investments, “I’m not buying platinum at the moment.”
Platinum, used mostly in jewelry and catalytic converters for cars, has plunged 64 percent since reaching an all-time high of $2,301.50 an ounce in March.
Central banks and President-elect Barack Obama should be careful in responding to the global economic slump, Rogers said.
“It is astonishing how bad they’re reacting this time. It is unfathomable to me what they’re doing and you think some of them would have read some history,” he said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoqpN8LQJqAM&refer=home
Commodity Fundamentals Are ‘Unimpaired,’ Rogers Says
By Nigel Stevenson and Brett Foley
Dec. 5 (Bloomberg) -- The fundamentals of commodities are “unimpaired” and prices will rebound when a lack of new supply leads to shortages, said Jim Rogers, chairman of Rogers Holdings.
“Commodities will be the place to be if and when we come out of” the downturn, Rogers said yesterday in an interview from Miami. “The only thing where fundamentals are unimpaired are commodities. Farmers cannot get loans for fertilizer now. Nobody can get a loan to open a zinc mine. So we are going to have some serious, serious supply problems before too much longer.”
The Reuters/Jefferies CRB Index of 19 commodities has plunged 53 percent from a record in July on concern that a global recession will sap demand for raw materials. The index almost doubled between its low in 2001 and the end of last year.
Rogers said crude oil and agricultural commodities were the most likely to have shortages and the outlook for zinc and cotton had “improved.” “I haven’t sold any commodities since the bull market began,” he said.
“I own some gold and if gold goes down I’ll buy some more and if gold goes up I’ll buy some more,” Rogers said. “Gold during the course of the bull market, which has several more years to go, will go much higher.”
Gold for immediate delivery has tripled since its low in 2001. It’s still 25 percent below the record $1,032.70 an ounce reached in March.
‘Unfathomable’
Rogers also said that while he owned platinum through index investments, “I’m not buying platinum at the moment.”
Platinum, used mostly in jewelry and catalytic converters for cars, has plunged 64 percent since reaching an all-time high of $2,301.50 an ounce in March.
Central banks and President-elect Barack Obama should be careful in responding to the global economic slump, Rogers said.
“It is astonishing how bad they’re reacting this time. It is unfathomable to me what they’re doing and you think some of them would have read some history,” he said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoqpN8LQJqAM&refer=home
any thoughts on SST.V/SVRCF.pk and Citigold...
the Australian gold miner on the ASX. May slowly get in both - but fairly new to juniors. Appreciate any comments.
added links in I-box to what I consider...
informative websites in regards to tracking the crisis.
another regarding deflation vs. inflation...
December 2, 2008
Monetizing the Debt
By Axel Merk
"This aritcle is an excellent discussion of the new, freely admitted, Fed policy of" printing money." It is lenghtly and somewhat complex, but worth the effort. The more we understand the governemnt solutions to the financial crisis, the more we will see the probelmatic long term implications of these policies.." -Editor
Deflation won't happen here; at least not if Federal Reserve (Fed) Chairman's Ben Bernanke's plan pans out. Deflation is considered a persistent decline in prices of goods and services; in a speech in 2002, Bernanke outlined the steps he would take if the U.S. ever faced the threat of deflation. Deflation is suffocating anyone holding debt as the debt burden becomes more difficult to finance with shrinking income; in contrast, inflation bails out those who have a lot of debt. In our assessment, fighting deflation is the Fed's top priority now; the latest minutes from the Fed's Open Market Committee (FOMC) meeting state: Indeed, some [FOMC members] saw a risk that over time inflation could fall below levels consistent with the Federal Reserve's dual objectives of price stability and maximum employment. [..] the limited scope for reducing the [Federal Funds] target further were reasons for a more aggressive policy adjustment; [..] more aggressive easing should reduce the odds of a deflationary outcome.
To understand how "more aggressive" easing is possible when interest rates are close to zero, a little background is required on how the Fed is "printing" money. Until a few weeks ago, the Fed's main tool to control interest rates was to manage the Federal Funds target rate by engaging in "open market operations" to buy or sell short-term government securities, mostly Treasury Bills. These operations are based on the principle that banks have cash deposits as reserves to lend money; for any dollar on deposit, a multiple may be provided as loans; the basic principal of modern banking assumes that not all depositors will want their money back simultaneously; a 'run on the bank' would occur in such a situation that would either result in the Fed coming to the rescue or the bank's failure.
The Fed can now "tighten" monetary policy by selling, say, Treasury Bills, to the bank; in return, the Fed will receive the cash; and the bank will have less cash available to lend - because of the multiplier effect, small actions by the Fed tend to have - albeit with a delay of a couple of months - significant impact on lending and thus economic activity. There are no coins exchanging hands; these are entries into the balance sheets at the bank and the Fed. By making cash less available in the banking system, the cost of borrowing, i.e. interest rates, goes up.
Conversely, the Fed can buy Treasury Bills from banks and supply them with cash (providing liquidity) in return. This unleashes lending power at the banks and lowering the cost of borrowing.
This world was shaken when Congress, as part of passing the TARP bank bailout program, authorized the Fed to pay interest on deposits at the Federal Reserve. Theoretically, even if the Fed provides massive amounts of liquidity, interest rates should not go to zero as banks should always be able to go to the Fed and receive interest on deposits there. The idea is that the banking system could be flooded with liquidity while ensuring that interest rates don't go down to zero. Fed officials are fairly miffed that the market hasn't quite worked that way as short term Treasury bills have hovered close to zero with the official target Federal Funds rate at 1% and the interest paid on deposits at the Fed at or near 1%. Note that many of the new programs the Fed has introduced have little or no historic precedent; as a result, the programs may not be as effective or may have unintended consequences.
Aside from paying interest on deposits, the Fed, using the above model, can do a lot more to provide "liquidity". Namely, the Fed is not limited to buying and selling T-Bills; as recent announcements have shown, the Fed is free to buy just about anything: mortgage backed securities (MBS), car loans, commercial paper, to name a few; the Fed could also buy typewriters, cars, domestic or international stocks, anything. In an announcement on November 25, 2008, the Fed said it would buy up to $600 billion of mortgage-backed securities issued by the government-sponsored entities (GSEs) Fannie and Freddie.
For example, a bank would like some cash, but cannot find a buyer for mortgage-backed securities it holds. The Fed may step in, buy the securities and provide the bank with cash. The bank in turn is now free to lend money - a multiple of the cash received.
How does the Fed get its money? It doesn't need to borrow it; it merely creates an entry into its balance sheet. All the Fed requires to "print" money is a keyboard connected to a computer. The difference between the Fed and the Treasury issuing money is that the Treasury needs to get permission from Congress before selling bonds. In this context, it shall be mentioned that physical cash (coins, bank notes) are entered as liabilities on the Fed's balance sheets; they are rather unique liabilities, however, as you can never redeem your cash: if you went to a bank, the best you can hope for in return for your dollar bill is a piece of paper that states that the bank owes you one dollar. While it is possible for central banks to remove cash in circulation, they are not obliged to do so.
Until recently, the Fed would only temporarily park non-government securities on its balance sheet: a bank would typically receive a temporary, often overnight, loan for depositing top rated securities with the Fed; these "swap agreements" were traditionally intended for very short-term loans, but the crisis has led the Fed and other central banks around the world to engage in 60, 90 day or even longer agreements. Since late September, the idea of swap agreements has been supplemented by outright purchases.
When the Fed issues cash for debt securities it acquires, we talk about "monetizing the debt".
This can be taken a step further, although this last phase has not yet been implemented: when the government needs to raise money, the Treasury issues debt in form of Treasury bills and Treasury bonds. To keep the cost of borrowing for the government low, the Fed may step in and buy Treasury bonds. Whereas traditionally, the Fed is actively managing short-term interest rates by buying and selling short-term Treasury bills, the Fed may also buy, say, 10 or 30-year bonds. It's a wonderful funding mechanism: if the Treasury needs to raise cash, the Fed could come and provide it.
Isn't this extremely inflationary? Quite possibly, quite likely, but not necessarily is the short answer. First of all, the Fed has the ability to "sterilize" its debt monetization program. Take the situation where the Federal Reserve buys "highly rated", toxic assets from the bank, but doesn't want the bank to go out and lend a multiple of the cash it receives. What the Fed can do is to sell the same bank, for example, some Treasury bills to "mop up" the extra liquidity. This would have the impact of improving the bank's balance sheet without supercharging the economy. Indeed, in late September the Treasury instructed the Fed to do just that; they even invented "Supplementary Financing Program" (SFP) bills for this purpose. On the chart below, the dark blue line indicates the cumulative growth in the Fed's balance sheet, i.e. the Fed's "printing of money"; the light blue line shows the cumulative activity to mop up the added liquidity by selling SFP bills to banks. The Fed's balance sheet has grown by about $1.2 trillion to currently over $2 trillion; Dallas Fed President Richard W. Fisher said the Fed's balance sheet may reach $3 trillion by January.
http://www.europac.net/#
he mentions specific gold stocks...
in his book - such as KGC, AUY, NXG, NEM - he also mentions SLV for silver. He names a few others, but essentially says that most will go up and should research and follow them and make your decision accordingly. Have been doing exactly that.
specific stock picks from Schiff...
would be great - and I'm working hard to come up with stock picks that meet his selection criteria. I contacted his firm and considered going with them - but the commissions are high and you pay dearly for his advice. It may be worth it - but have always been a do-it-yourselfer and have confidence that I can find picks similar to what he might come up with - especially if have help from others.