Britannia Radio

Monday, April 13, 2009 The fun didn't end just because the housing bubble did... $196 billion budget deficit - for March... $13 trillion for the bailout campaign... Where's Volcker?...be your own central bank... The Mogambo Guru on the worldwide gold shortage...and more! The Feds Keep Spending Alive by Bill Bonner Buenos Aires, Argentina What a wonderful time to be alive! Never has it been easier to feel superior to our fellow man! So many dopey ideas...so many preposterous delusions! So many fools...so eager to part ways with their money! We have to pinch ourselves occasionally...and remind ourselves that it is real. Yes, after the real estate bubble burst, we thought the fun might be over. But no! In come the feds. As you know, what brought about the housing bubble was a sort of madness that caused people to do the damnedest things with their money. But now, the feds are doing even stranger and crazier things! Actually, we were happy to see the bubble blow up. Spending more than you make is hardly a formula for wealth-building. All in all, we figured our countrymen would be happier, over the long run, if they started saving their money rather than squandering it. Besides, we liked seeing Wall Street getting whacked - those clowns deserved it. The savings rate in the United States is rising quickly. We reported the falling balances in credit card debt last week. And the last figure we saw showed the savings rate had jumped from about zero to over 3%. Our guess is that it is headed back to about 10%. That's about where it is "supposed" to be. But thank God for the feds. While the imperial citizens sober up...their government builds a still. While citizens save 3% of GDP, their government spends 15% - and more. The feds' budget deficit for March alone would have been enough for an entire year during Reagan's...or even Bush's...term. At $196 billion, it is the monstrous fruit of crashing tax revenues and soaring government expenses. Just a few months ago, we were talking about a $1 trillion budget deficit. When the discussion began, most people refused to believe it. How could the government - in good conscience - spend $1 trillion it didn't have? Here at The Daily Reckoning, we guessed that the deficit would go to $2 trillion. Not that we'd done any calculations...it just seemed to us that people consistently underestimated both the downward pressure from the bear market and the upward pressure from the politicians. The bear taketh away. The jackasses giveth. Well, at least they're trying, right? Of course, we'd all be a lot better off if they didn't do anything. But then, it wouldn't be so much fun to watch. The total committed to this bailout campaign is now said to be about $13 trillion. Let's see, that's more than $100,000 per family. Better start working on your own 'personal bailout' sooner, rather than later. We have all the tools you need to get started in our "Emergency 'Personal Bailout' Bundle" which you can find here. It's the "Theft of a Nation" says Stewart Dougherty: "The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people's gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America's gold asset. Fort Knox has been robbed..." They're squandering $13 trillion...or nearly 49 times the U.S. gold supply. But heck, it's worth it. The whole thing is very entertaining now...and will be hugely instructive in the future. When this is over, the next two are three generations are sure to say: well...we won't do THAT again! And with that, we turn to Addison, who tells us of a strange new trend for the greenback: "Last week, stocks capped off their best rally since 1933," writes Addison in today's issue of The 5 Min. Forecast. "The S&P 500 rose for the fifth straight week, now 27% off its low in early March. You'll have to go back to the Great Depression to find a 23-day rally that sizable. "Thursday alone, the Dow ended up 3.1% - back above 8,000 for the first time since early February. "And with this historic run, we see a peculiar new trend for the US dollar. Observe: "On Thursday, however, the dollar rallied big right along with stocks. Today, the Dow opened down 100 points...and the dollar index dropped nearly a point. It's a curious trend developing with this 'sucker's rally'. When it sputters...and the dollar plays along...look out below." Each weekday, Ian and Addison bring readers the The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less. The 5 is a free service to subscribers of our paid publications, including the newly relaunched Richebächer Letter. Dr. Kurt Richebächer could often be found in the pages of the DR, or his newsletter, The Richebächer Letter, calling for the demise of the dollar...along with the collapse of the housing market and the end of the over-extended American consumer, as far back as 2000. Many of you felt the void left by Dr. Kurt Richebächer when he passed away in 2007, so in his honor we've formed a brand new 'wealth protection' society. For a short time, we'll waive the membership fees to the Richebächer Society - but only to those who act before April 20, at 5 PM. Get all the information here. And back to Bill, with more thoughts: We are still a bit stuck on the $13 trillion price tag for these bailouts. Makes you wonder where former Fed chairman Paul Volcker, who was tapped back in November by Obama to head the President's Economic Recovery Advisory Board, is in all this. Our friend Barry Ritholtz was pondering the same thing in a post on his blog, The Big Picture. "If you want to know why the administration's approach to the credit crisis has been lacking, and why the Obama bailouts looks surprisingly like the Bush bailouts, consider this: No Volcker." Barry mentions an interesting WSJ piece that points out that Paul Volcker was put at the head of an advisory board that has yet to meet. Says the WSJ: "'Paul was surprised' at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently." "To review," writes Barry, "You have access to the greatest Fed chief in history, and you are choosing not to use him during the greatest crisis since the Great Depression." Our sentiment exactly. A dear reader poses a question: "...if you were a single mom, with a little cash & metal in a QRP, who had cut her expenses very, very low, who is staying home to take care of her own children and do contract work to get by AND save a little...what else should I be doing? Move to the country or should I move out of the states? "Invest in shoes and underwear for my kids now pre-inflation, prepare for self defense, food storage, learn to grow vegetables...I am doing these things, but I just can't get myself to feel 'safe.' I am scared witless because I am afraid, not of a depression...that I can survive...I grew up really poor, but I am scared of the chaos that will ensue and the political/military escalation that will follow that...now that is what keeps me up at night "What would you tell your Mom or your sister to do? I am really not feeling very well about all of this. How can I get to where I feel safe? I am thinking maybe the Appalachian Mountains or something. The government terrifies me." What would we say? "Hmmm..." we would probably begin. "As to the financial crisis, we can provide some ideas." But our reader seems to have already gotten the gist of them already. For the benefit of other readers, the central banks of the world have failed to do their jobs - to provide the world with sound, reliable money. This means that we each have to be our own central banker - stocking a supply of gold against the inevitable collapse of paper currencies. It is as if we couldn't trust the power company to provide electricity. We have to have a portable generator on hand - just in case. We like to have some gold...just in case. But our reader has an even deeper fear: that we can't trust our government to provide security either. Security is the main reason governments exist - that, and larceny. Nevertheless, they don't always do a good job of providing security. In fact, they tend to fall down on the job often - usually when security is most needed. Most of the time, not much security is called for. People get along, more or less. Most people wouldn't kill their neighbors - even if they thought the cop on the beat could be bought. But occasionally, they get an evil urge and you need someone to step in with a blackjack and a pair of cuffs. But government can be a source of insecurity, too. One security team attacks another from time to time. And occasionally, the security providers attack the people for whom they are supposed to be providing security. Here in Argentina, for example, there have been few genuine threats from the outside - at least not since the emperor of Paraguay, goaded by his Irish mistress, made a mad bid for control of the country in the mid-19th century. But in the 1970s, the government decided it had quite a few people it would rather not have. They were "disappeared." No doubt, many who were not disappeared were glad to be rid of them. They were troublemakers. But our reader seems to be afraid that she may among those who are disappeared from the United States in the next go-round of violence...or maybe just that she will be caught in the crossfire. The odds are probably against it. But who knows? "America: a super-power no more," says a headline at the Christian Science Monitor. Empires come and go. They don't always go easy. Lately, we've been thinking: There are only three important decisions you make in life: what you do; whom you do it with; and where you do it. Buenos Aires is a big city with many different neighborhoods. Your editor is staying in the Palermo Soho area. We have lived in many different places and visited many more. We don't recall ever seeing a place that seemed so delightfully lively and convenient. The cobblestone streets are flanked by buildings of only one or two stories. Some have Belle Epoque or classical facades. Most are more modern with all manner of style - but leaning towards the contemporary chic. It's a neighborhood blessed by a lack of urban planning. Houses, apartment building, high-fashion shops, bars, supermarkets, restaurants, auto repair garages - you can find them all in a single block. The sidewalks tend to be rough; they've been patched, neglected, repaired, and overlooked for many, many years. There are also many trees - from the stately old sycamores on Thames Street, to many smaller, newer varieties we can't identify. Within a block or two of our hotel there are dozens of eateries - from simple pizza parlors to very serious restaurants. The weather is perfect this time of year, so people sit outside all day long. They take their coffee in the morning...then lunch slides into mid- afternoon...and dinner slips all the way to 10 PM. Nightclubs open after midnight. By the time your editor is waking up, the revelers are still wandering the streets. We went to lunch on a street corner near the hotel. The place was what Argentina is famous for - a steak restaurant. The restaurant had put a roof over the sidewalk and placed tables and chairs under it. We dined on white tablecloths...and watched people ambling along...mostly families with young children and some tourists. It was so agreeable...we wondered why we remained in Europe, where it is twice as expensive...and the weather is twice as bad. Day and night, people walk the streets...shopping...going to cafes and art galleries... This morning we heard a flute. It sounded like Pan calling to the water nymphs. A man rode slowly down the street on a bicycle onto which he had fashioned a grinding wheel for sharpening knives. The flute was his way to let people know he was in the neighborhood. A woman washed the sidewalk on the other side of the street. She has a shoe store, with a big blue arch on the roof. The window displayed what we would call "tennis shoes," even though they're not really for playing tennis. They're replicas of the kind of shoes we wore in the '50s and '60s...Keds...or Chuck Taylor's All Stars...with rubber soles and canvas uppers. Now, they must be in demand. Every shoe store has thousands of them, in all colors - from fuchia to silver lame. "Why not move to Buenos Aires?" we posed a loaded question to Elizabeth. It went off immediately. "Are you crazy? We moved from the United States to Europe. We've already gone through that once. Have you forgotten how hard it was to figure everything out? Finally, after all these years, we have friends...we have things to do...we have things set up the way we want. Well...almost the way we want. Even after 15 years, we're still not totally settled. "Why would you want to go through all that again?" "I'll get back to you when I have a good answer," we said in retreat. One final thing. We're headed up into the mountains. You won't hear from us for a week, but we leave you in the hands of Kate Incontrera and the rest of the DR contributors. Adios, Bill Bonner The Daily Reckoning --------------------- Special Offer --------------------------- You Can Still be a Part of History Early last month, science once again became a national priority...and this is just the tip of the iceberg. If you play this change right, you could quickly accumulate three generations of wealth. Real wealth. Wealth the markets can't touch. What you are about to read is so lucrative, we could only offer it to a limited amount of people. There are only 70 spots left...and they are going fast! Don't let this once-in-a-lifetime opportunity pass you by. This offer will sell out. Read the full report here. --------------------------------------------------------------- The Daily Reckoning PRESENTS: In a thriving economy, investors who short gold rarely - if ever - actually see any of the yellow metal. They deal in paper and theoretical money. But this economy isn't thriving... Which begs the Mogambo to ask the question, "What happens when everyone wants some physical gold for protection...and there isn't enough to go around?" Read on... Golden Shorts in an Economic Winter by The Mogambo Guru Tampa Bay, Florida Avery Goodman at Seekingalpha.com asks the intriguing question, "Did the ECB Save COMEX from Gold Default?" If I had been writing it, I would have titled it "Not All Of The People In The World Are Stupid!" with the subhead, "There are lots of smart people who are buying gold to capitalize on the sheer stupidity of governments abusing fiat currencies so that inflation in prices will soar as inflation in the money supply soars, until gold-owning people, giddy with greedy glee, will say, 'The Mogambo was right! Whee! This investing stuff is easy!'" But I am not here to show off how good I am at coming up with boffo headlines with the subtle undertones so that they offer me a job, at a fabulous salary, to write headline gems like this one; this is about how "On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000+ contracts, representing about 15% of the April COMEX gold futures contracts remained open" indicating that, as holders of those long gold contracts, they "demanded" delivery of the physical gold "by holding futures contracts past the expiration date." The big problem belongs to the short-sellers of gold, who are finding, suddenly, that "long buyers were demanding in droves" - demanding physical gold bars, when, apparently, there were not enough. Since I am confused as to what all of this means, Mr. Goodman correctly interprets the blank look on my face as puzzlement - if not outright befuddlement - and patiently explains that to keep things in perspective, history has shown that people investing in COMEX futures don't necessarily want physical gold, and that they are merely speculators, as, "In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper" which is the basis of the alleged gold and silver scams, as GATA.org and Ted Butler have long exposed, which gets us talking about how corrupt regulators are these days, as everything is else corrupted these days, which is, of course, just what you would expect at the end of long monetary booms, which doesn't make it any more palatable. But back to our story of the almost-default at COMEX... Fortunately, at the last minute, Deutsche Bank delivered "a massive 850,000 ounces, or 8500 contracts worth of the yellow metal." This is where I kind of lost interest, as this kind of thing is like blood in the water to sharks, who will soon be looking at the low price of gold and the complete lack of supply of bullion, and they will be hatching plots to squeeze this disparity and make a lot of money, and I was soon fantasizing about how my tiny little stash of gold will soar and everybody else who doesn't own gold will be busted out, now that the scam has been busted, and there will be people, like cute college coeds, who will be so desperate that they will say they are willing to do anything for money, and I will say, "Anything?" and then they will quickly affirm, "Anything!", and so I again ask, but with a rakishly raised eyebrow and licking my lips in a lascivious manner, "Anything?" and they gulp and say, but without their former enthusiasm, "Anything"... So you can see how I was distracted. “...not only are a bunch of guys buying gold and demanding delivery of the actual metal, but now increasing demand has swamped supply!” And anyway, somewhere along the line he admits that it is "circumstantial evidence" that Deutsche Bank was a major holder of short positions, or that "the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB", which gets back to the headline "Did the ECB Save COMEX from Gold Default?" that we were discussing previously. All of this, of course, is fraudulently criminal in many, many ways, breaks a lot of regulations in those and other ways, and he calls for investigations and indictments and all of that stuff, which won't happen because the amount of corruption at the end of long monetary booms is so pandemic that it won't be allowed. Now, before I go off ranting and raving about how another bunch of scumbags perpetrated another scam with compliance from government scumbags, let's concentrate on the important fact that not only are a bunch of guys buying gold and demanding delivery of the actual metal, but now increasing demand has swamped supply! Amazing! In conclusion, let me say that if people don't buy gold, in spite of the overwhelming historical evidence to do so when the money supply is set to double (and then double again and again!), in spite of gold's gains for the last decade, in spite of the sight of people suddenly taking delivery of physical gold in unprecedented amounts, and in spite of me telling them right to their faces to buy gold, then there is something very, very wrong with them, which ought to give them something to think about as they are idly scratching around in the dirt looking for bugs to eat, because this economic mess caused by a Congress constantly deficit-spending and a Federal Reserve constantly creating the money for them to do so is going to get Really, Really Nasty (RRN), and I am scared for me and for them. But I am not as scared when I have gold, so at least I have that going for me! Whee! Until next time,