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The Daily Reckoning Weekend Edition Saturday, November 14, 2009 Taipei, Taiwan Booming pipes, crashing currencies and gold gone wild, The US trade gap blows out: China cranks up her factories, That planned economy experiment, revisited, and plenty more... --------------------------------------------------------------- Joel Bowman, reporting from Taipei, Taiwan... "Those damned consumers and their whiny confidence readings!" the Feds must be cursing. Sentiment dropped to its lowest in three months, according to the Reuters/University of Michigan preliminary index. Apparently the consumers aren't reading the papers. Don't they know a recovery is underway? After all, the S&P finished up for a second straight week, higher by around 2.5% since Monday's open. The markets are 60% above the 12-year low set back in March, and within a whisper of recouping half the losses since they fell from their 2007 records. "What's not to be confident about?" the Feds wonder - incredulous that foreclosed families are not whistling the same recovery tune. They point out that the banks are back to lavishing record-level bonuses on their top brass...trading desks are wheeling and dealing again...everything under the sun is worth more (in dollar terms) than it was a few months ago...AND, unemployment is still a few percent lower than Estonia's record high... And yet, despite all this "good" news, those consumers are trying to pay down their debt. Why, they're just spoiling the party! We can almost hear those disgruntled DC goons now... "Just because those ungrateful saps don't have jobs, doesn't mean they shouldn't be pulling their weight to aid the recovery. Why aren't they out there buying more stuff from the department stores? Don't they know we're broke? This is the time to spend, spend, spend! And don't give me that 'tapped out credit line' hogwash either. Why, look at our national credit card. It's in a despicable state...but has that stopped us from doing our bit to spend our way out of trouble? I should think not!" If only our unemployed brothers and sisters read the paper they would know that true economic recovery - the sustainable, nation inspiring kind - only comes from plasma television lay-aways and gratuitous Visa purchases at the individual level. Well, at least that's what their government expects of them. But the individual is not like his government. He cannot, for example, amass exorbitant debts to his neighbor and then simply print off the money in his basement to repay them. If the Feds catch him in the act, he is charged with counterfeiting and sent to the slammer. The Feds don't like competition, you see, and currency debasement is their racket. To them, the smell of freshly-inked bills is an anodyne for the inconvenient pains of real world economics. But such naïve thinking is truly dangerous, and dangerously untrue. It leads arrogant politicians to think that "deficits don't matter," as one ineloquent politician infamously remarked. Take, for example, just one of the mounting debt problems facing the United States: the trade deficit. According to figures released Friday by the Commerce Department, that deficit - which measures the difference between US imports and exports - jumped 18.2% in September, the largest margin in a decade, to $36.5 billion. The shortfall to China alone jumped 9.2% to $22.1 billion for the month, the highest imbalance in almost a year. No prizes for guessing which country owns the most US debt overall... But that's okay, the Feds say. We'll just auction off more bills to finance it. This week alone, The US Treasury auctioned off $81 billion in new debt ($40 billion in three-year notes on Monday, $25 billion 10- year notes and $16 billion in 30-year bonds). By any measure you care to use, that is a large number. Sure, its lunacy...but that usually only guarantees that it's also policy. Dan Denning had a great piece during the week about US sovereign debt with a rather foreboding chart you might want to check out. Long story short: Debt eventually comes due. And, if you haven't treated your creditors with respect, they might not be so willing to continuously finance your shopping sprees. That the citizens of Bailout Nation express some trepidation about their financial future is no surprise. In fact, given the spendthrift nature of their government, any skepticism must be viewed in a complimentary light. Contrary to popular political opinion, Chinese people don't make the world's toys for free. One day, perhaps very soon, those workers are going to start demanding what they're owed. So yes...we'd be worried too. More below... --- But First...Here's a way to Unleash Gold's TRUE Potential --- Triple Your Gold Gains With "Slingshot Options" Every time gold goes up $1, this "slingshot option" could pay you $3 or more...with gains as high as 620% by June 2010. A Special Opportunity Report by Byron King, Senior Analyst "[Slingshot Options] are the investment opportunity of a lifetime." - Moneyweek --------------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... When Pipes Go "Boom!" By Chris Mayer Gaithersburg, Maryland It was pouring rain in Manhattan when I tried to begin my long journey back to my hometown in Maryland. There was a long line for cabs, and I had to get to Penn Station to catch a train. So I took a bicycle rickshaw whose driver was eager for business. "The only way to travel in Manhattan," he said. He was a stout fellow with a shaved head and bad teeth that looked like blackened pylons on an old waterfront. Major League Reckoning By Dan Denning Melbourne, Australia Now there's a real decoupling. Friday's unemployment figures came out in America. They showed that 8.2 million Americans have lost their job since the GFC began in 2007. The official unemployment rate (the one that under-measures actual unemployment) is at 10.2% and growing... Stocks rallied on this news. When Currencies Crash By Dr. Marc Faber Chiang Mai, Thailand The US is dedicated to debasing its currency. Are you ready? There is a risk in holding cash in an environment of asset price inflation - a condition that usually occurs when governments create large fiscal deficits and inflate the money supply. The practice is endemic to banana republics and declining empires...and it is happening in the US at this very moment. Another Reason to Buy (More) Gold By Chris Mayer Gaithersburg, Maryland The age of de-leveraging is upon us. Bad news for the US economy; good news for gold. For the past 60 years, corporate debt has grown faster than the economy - 4.1% annually for debt, compared with only 2.7% for the economy as a whole. In short, more and more debt went toward producing each dollar of GDP growth. What if this 60-year trend reverses? Ostalgie: The Haunting Fear that Others are Diddling the System Better Than You Are By Bill Bonner Rome, Italy Only a moron would allow economists to make decisions for him. So, this week, we give thanks to morons. We're referring to the dumbells who took part in the largest and longest and most complete test in economic history. Two generations and 20 million of them. The poor lumpen of Mitteldeutschland proved that capitalism - even with heavy state interference - delivers the goods better than a planned economy. --- Introducing the Options Hotline Guarantee --- Our readers could have turned $5000 into $1 million in just over 5 years "Each week, I tell my readers to make just 1 investment buy. And since November of 2006, not one pick has lost value! It's no wonder our readers could have turned $5,000 into $1 million in just over 5 years! Now, we're quickly closing in on $2 million - currently at $1,892,043.04! "Read on to find out how to start making huge gains!" - Steve Sarnoff, editor, Options Hotline --------------------------------------------------------------- The Weekly Endnote: Hmm...here's something that could go terribly awry: If you would like to write your managing editor directly, you can do so at the address below. There. It's out there. Now, we won't be able to respond to each email directly, but we promise to take the time to read your thoughts. Please feel free to voice comments, concerns, ideas and any other constructive feedback you wish to make known. We ask only that if you are of the mind to cast personal insults, please endeavor to at least make them creative and/or humorous. Until next time... Cheers, Joel Bowman Managing Editor, The Daily Reckoning joel@dailyreckoning.com   The Daily Reckoning - Special Reports: The US Trade Deficit: Fort Sumter...And The U.S. Trade Deficit US Recession: By far the Weakest Recovery "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.