Regulators Are Looking Into Labeling Gold A Tier 1 Asset

"What this report (from perhaps the Internet's best blogger, the anonymous "washingtonsblog") documents is that the world's major central banks have recently issued proposed regulations adding gold as a currency for when the capital requirements of individual banks are being calculated.

This momentous news means that within just a few months, almost surely before 2013, when the new rules will become fully approved and in force, gold will officially be a currency again, at its new market-value, and no mere commodity (such as copper or even silver or platinum are -- even silver and platinum are unmentioned in these new rules as being natural currencies, only gold is mentioned, which is basically what the new rules are saying about gold: that it's a "zero-risk asset" or a "Tier 1 Asset") the cost of gold will then soar, just as a bond normally would soar if a private corporation's bonds are upgraded by Moody's or S&P, but even more so.
Notice, for example, that, according to the new rules in the U.S., a given bond's rating from the credit-rating agencies such as Moody's and S&P will no longer even be considered when calculating a given bank's reserve-requirements. This means that now, officially, the credit-rating agencies themselves are effectively junk -- too corrupt to count for anything, in the eyes of the FDIC etc. But gold will count as a "zero risk" asset, with no "credit rating" at all to worry about.

This information has not yet been factored into gold prices, much less into the value of gold-mining stocks, which are temporarily severely depressed due to the relative strength of the dollar vis-a-vis the euro. (Gold is priced in dollars, as the international reserve currency.)

Regarding gold versus gold-mining shares, as different ways to invest in gold: gold-mining shares are valued on the long-term expected future price of gold, plus on the given mining company's management and other distinctive features; but physical gold is valued only on the current price of gold. This is why gold-mining shares are in a deep slump: the dollar's temporary strength against the euro is pushing down the gold-price and therefore depressing the apparent future value of gold-in-the-ground.
Once the new rules go into effect, the value of gold-in-the-ground will jerk up, with explosive implications for gold mining shares (whose valuations are typically based upon around a one-third discount of the current gold-price). Gold-in-the-ground will thus rise even more sharply than bullion, because suddenly, the doubts about whether gold is now priced in "bubble" territory will be gone; everyone will recognize that gold has been undervalued as a mere "commodity" (like silver and platinum will continue to remain).

Though this is not insider information, it is clearly valuable information for anyone who wonders about the value of gold, and of gold-mining companies, during the next few months."
at http://www.businessinsider.com/regulators-gold-tier-1-asset-2012-6#ixzz1z74P9yol

Econonomic and Social Conditions: More Closely In Synch

"Crime will run rampant as police departments and other government services that help maintain public order eliminate or cut back on jobs, overtime, and equipment, while growing numbers of formerly law-abiding but now desperate citizens reveal their dark side."
-- Chapter 9, "Economic," Financial Armageddon

Although a number of the predictions I made in my March 2007 book have come true, one thing we haven't seen is a dramatic rise in illegal activity, despite evidence, as sociologist Steven Box concluded in his 1977 book, Recession, Crime, and Punishment, that a "deterioration in material circumstances [leads] to more crime."

Some have argued -- probably rightly so -- that the reason why things are different this time is because an extraordinary large percentage of Americans are currently in prison. Others maintain that the modern social safety net has alleviated at least some of the pressure that turns law-abiding citizens into opportunistic criminals. Regardless, a report at Business Insider, "Stockton Goes Bankrupt And Already The Murder Rate Is Soaring," suggests we may be getting closer to the point where economic circumstances and social conditions are more closely in synch:

Stockton, California is filing for the largest bankruptcy of any U.S. city in history due to the decline in the once hot housing market and an intake of debt during its boom years.

The city has cut more than $90 million in spending over the past few years, specifically in its police department. The city has cut over one quarter of its police jobs, which has led to a "surge in murders," and has created an "emboldened criminal element" in the city. According to police spokesman Joe Silva, the city has had 87 murders since the start of 2011, 29 of which have already occurred this year. In contrast, there were 35 murders in 2009 and 48 in 2010. With six months left in the year, there have already been more murders in the city since the start of 2011 than the two-year stretch of 2009-2010."

at http://www.financialarmageddon.com/2012/06/more-closely-in-synch.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+financialarmageddon+%28Financial+Armageddon%29

China starts "combat ready" patrols in disputed seas

" China has begun combat-ready patrols in the waters around a disputed group of islands in the South China Sea, the Defence Ministry said on Thursday, the latest escalation in tension over the potentially resource-rich area.
Asked about what China would do in response to Vietnamese air patrols over the Spratly Islands, the ministry's spokesman, Geng Yansheng, said China would "resolutely oppose any militarily provocative behavior".
"In order to protect national sovereignty and our security and development interests, the Chinese military has already set up a normal, combat-ready patrol system in seas under our control," he said.
"The Chinese military's resolve and will to defend territorial sovereignty and protect our maritime rights and interests is firm and unshakeable," Geng added, according to a transcript on the ministry's website (www.mod.gov.cn) of comments at a briefing..."

at http://www.reuters.com/article/2012/06/28/us-china-southchinasea-idUSBRE85R0J520120628?feedType=RSS&feedName=worldNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Reuters%2FworldNews+%28Reuters+World+News%29

The Fate of the Global Financial System Hangs in the Balance

"Critical meetings are taking place today and tomorrow which may decide the fate of the EU. With that as the backdrop, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management, to get his take on what is happening. Leeb told KWN the situation in Europe has “gone from bad, to worse, to outright frightening.” Here is what Leeb had to say about what is taking place: “My attention right now is focused on Europe. What is going to happen over in Europe is going to be incredibly important. Any rational person looking at the calculations would expect Germany to play ball, which means come up with a major funding package.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/28_The_Fate_of_the_Global_Financial_System_Hangs_in_the_Balance.html

Is this 1931 all over again? Paul Krugman, Nouriel Roubini, Niall Ferguson and more think so

"Is the world about to repeat the economic catastrophe of 1931?

A growing chorus of economists of all stripes thinks so.

 

“Suddenly normally calm economists are talking about 1931, the year everything fell apart,” writes Nobel prize winning economist Paul Krugman in the New York Times.

“The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening, write Bradford DeLong and Barry Eichengreen in the new preface to Charles Kindleberger, The World in Depression 1929-1939.

“We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.”

at http://business.financialpost.com/2012/06/25/is-this-1931-all-over-again-paul-krugman-nouriel-roubini-niall-ferguson-and-more-think-so/?utm_source=The+Great+Depression+Again%3F+%7C+6-26-2012&utm_campaign=Constant+Contact&utm_medium=email

Chinese Yuan Set to Increase Dramatically in Value – Buy Some Now – It’s Easy!

"Chinese Yuan Set to Increase Dramatically in Value – Buy Some Now – It’s Easy!

Edelson goes on to say, in part:
China’s currency is set to dramatically appreciate against the U.S. dollar in the years ahead; I estimate as much as 50% and that means the value of the U.S. dollar, conversely, is going to lose as much as 50% of its purchasing power. So it’s not just gold you want to own, but some Chinese currency as well.

I like the Market Vectors-Renminbi/USD ETF, symbol CNY, [to do just that]. It’s an ETF that tracks the Chinese currency, is easy to buy, and has a low beta, meaning it’s not too volatile..."

at http://www.munknee.com/2012/06/chinese-yuan-set-to-increase-dramatically-in-value-buy-some-now-its-easy/

CITI’s “Investment Clock” Is at 8 O’clock – Here’s What That Means

"The latest research note from CITI’s Richard Schellbach includes the firm’s “Multi-asset Investment Clock” which tells us we are now at 8 o’clock. What does that mean? Take a look..."



at http://www.munknee.com/2012/06/citis-investment-clock-is-at-8-oclock-heres-what-that-means/

Don Coxe - Get Ready, Banks to Collapse In Europe

"Today 40 year veteran, Don Coxe, told King World News “...the amounts involved are at mind-boggling levels,” in terms of what is needed for Europe’s governments and banks. Coxe, who is Global Strategy Advisor to BMO ($538 billion in assets), also said that European banks, “...have borrowed huge amounts of money, in dollars, under currency swap arrangements,” and “if banks start to go down, we know from 2008, when banks start to crumble, then the whole system falls.” Here is what Coxe had to say about the ongoing crisis: “Well, first of all we’ve got to stop using ‘billions’ because if there is going to be a fund that works, it’s going to have a ‘T’ (for trillions) on it. We are dealing with some very big numbers in the sense that Italy, although it’s not that big of an economy, it’s got the third largest amount of bond debt outstanding.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/26_Don_Coxe_-_Get_Ready,_Banks_to_Collapse_In_Europe.html

Eveillard - This Is All A Delusion, I Am Keeping My Gold

"With global stock markets trading higher, today King World News interviewed legendary value investor Jean Marie Eveillard, who oversees $50 billion at First Eagle Funds. Eveillard told KWN that despite “the fact that the stimulus has been completely unprecedented in scope ... the economic recovery seems to be sputtering.” He also discussed the gold market, but first, here is what Eveillard had to say about the ongoing crisis: “There is no doubt that there are major deflationary forces at play. There is also no doubt that the private sector is continuing to deleverage. But in order to prevent the deleveraging of the private sector from sending the economy into a replay of the Great Depression, governments are leveraging themselves.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/27_Eveillard_-_This_Is_All_A_Delusion,_I_Am_Keeping_My_Gold.html

Systemic Banking Crises Database

"Interesting run of charts in the IMF Working Paper update titled “Systemic Banking Crises Database.”

Click to enlarge:

˜˜˜

~~~

more charts after the jump . . .


˜˜˜

˜˜˜


Source:
Systemic Banking Crises Database: An Update
IMF Working Paper, June 2012
(PDF)

at http://www.ritholtz.com/blog/2012/06/systemic-banking-crises-database/

Too Much Debt: Our Biggest Economic Problem

"What is the biggest economic problem that the United States is facing? Very simply, our biggest problem is that we have way too much debt. Over the past 30 years, household debt, corporate debt and government debt have all grown much faster than our GDP has. But no nation on earth has ever been able to expand debt much faster than national output indefinitely. All debt bubbles eventually burst. Right now, we are living in the greatest debt bubble in the history of the world. All of this debt has fueled a "false prosperity" which has enabled many Americans to live like kings and queens. But no nation (or household) can pile on more debt forever. At some point the weight of the debt becomes just too great. It is amazing that the United States has been able to pile up as much debt as it has. Over the years, many authors have predicted that U.S. government finances would collapse long before the U.S. national debt ever got to this level. So the mountain of debt that we have accumulated is quite an "achievement" if you want to look at it that way. But the clock is ticking on this debt bubble and when it collapses we will say "bye bye" to our vastly inflated standard of living and we will discover that we have destroyed the economy for all future generations of Americans..."

at http://theeconomiccollapseblog.com/archives/too-much-debt-our-biggest-economic-problem

Americans Take Note: European Crisis is Adversely Affecting U.S. in MAJOR Way – Here’s Proof

"Americans, don’t think for one moment that the crises in Europe are irrelevant! This past April the U.S had the largest monthly decline in exports to Europe in the past 7.5 years and this trend will only get worse – much worse – as the crises spread and linger. Exports to Europe are now down 2.7% from April 2011, the first yearly decline since February 2010. The chart below says it all."



at http://www.munknee.com/2012/06/americans-take-note-european-crisis-is-adversely-affecting-u-s-in-major-way-heres-proof/

Richard Russell - This Terrifying Financial Collapse & Gold

"With global markets trading in a sea of red, the Godfather of newsletter writers, Richard Russell, issued the following warning: “... it is dawning on Bernanke that the Fed cannot defeat the powers of deflation and the primary bear trend ... and Bernanke knows it, but cannot talk about it - it's too frightening.” Russell also discussed gold at length, but first, this was Russell’s disturbing conclusion regarding the precarious situation we face: “The Russell view -- The Fed and all central banks are fighting the implacable forces of global deflation. This is really the primary bear trend that I've been writing about. It's the result of a fundamental change in the world markets. Suddenly, within the space of a few years, Asia has entered the global economy.”

Richard Russell continues:

“The world is now producing far more goods (and more competitively) than ever before. I think deep in his heart, Bernanke knows and understands this. As a result, he does not want to use all the possible anti-deflation ammunition that the Fed can muster. The reason -- it is dawning on Bernanke that the Fed cannot defeat the powers of deflation and the primary bear trend.

The result is that the sinking economy is actually producing signals ahead of the Fed, and Bernanke knows it, but cannot talk about it - it's too frightening. Now Bernanke is playing for time. He's hoping that somehow, some way, the US economy will not get worse and that it might even improve slightly. Bernanke is worrying about the Fed's bulging balance sheet. It's so huge, how will he ever contract it?

In the meantime, the stock market is more puzzled than ever. With uncertainty looming large, the market backs off. It is giving up on QE3. In the absence of QE3 the market does what it always does to protect itself, it backs off.

Sadly, the whole world is searching for income and safety, and the fact is that there is no income and there is no ultimate safety. Then how does one build wealth? The Asians know the answer to that -- YOU BUY and HOLD GOLD -- and exercise a lot of patience. 

Stocks can declare dividends, but they can omit their dividends during hard times. Furthermore, stocks can go broke. But gold represents indestructible wealth. Gold rises in terms of fiat money, and gold declines in terms of fiat money.

Gold possesses some properties that are beyond the scope of other investments. Gold can't go broke, because gold does not derive its purchasing power from the edict or control of any sovereign power or central bank. Gold has no counter-parties. Gold is tangible and is accepted everywhere -- in good times or bad. Gold exists outside the world's banking system. Unlike fiat money, gold is wealth on its own. 

It's tangible and not the fantasy-creation of central bankers. Gold does not need a sponsor or the acceptance of an expert (such as pricing a Picasso painting), because all gold is intrinsically the same. Gold does not tarnish nor does it degenerate -- the gold in your watch may be the same gold that Cleopatra wore around her neck. 

The supply of gold, unlike paper money, is limited. Alchemists have tried for centuries to turn other metals into gold -- but have never succeeded. Gold is a beautiful metal on its own and the lust for gold seems to be built into the DNA of mankind. If you own ten thousand ounces of gold, you can say that you will ALWAYS be wealthy.

I have said before that China intends to be THE world leader. In order to make that happen, China has decided to defeat the US on economic terms. And that means -- first, replacing the US dollar as the world's reserve currency, and establishing the renminbi as the world's new reserve currency. For the last two years, China has encouraged its people to accumulate gold on their own. 

It is clear that China intends to be the world center for buying and selling gold. China is also placing vending machines in various strategic areas, which will allow people to buy small quantities of gold at their leisure, just as if they were buying chewing gum.

The plus in all this for Americans is that the price of gold will be out of the grip and manipulations of the Federal Reserve and the Comex. It is well known that the Fed despises gold, because gold is out of the of the Fed's control. Furthermore, gold competes with the Fed's own fiat currency. The value of gold never changes. What changes is the number of dollars that are required to purchase a specific quantity of gold.

Note on the chart below (from Google) that China is a minuscule holder of gold compared with Western powers. For instance the US holds 8133 tons of gold while China holds a mere 1054 tons of gold. China means to change this ratio. Actually China's ratio of gold to currency is a tiny 1.7% while the US ratio is above 74%."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/25_Richard_Russell_-_This_Terrifying_Financial_Collapse_%26_Gold.html

Brace For Turmoil In Global Markets As Spanish Domino Falls

"On the heels of Moody’s downgrading 28 Spanish banks, today 40 year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States. Here are Fitzwilson’s observations of the current crisis we face: “The monetary system is trapped. Despite various forms of quantitative easing and the forcible reduction of interest rates, the level of economic activity has begun to reverse course. The recent releases of economic indicators, in most areas of the world, have been revealing a global economy that is beginning to tank. It is clear that the levers exercised by the central banks since late-2008 are not as effective as they once were.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/26_Brace_For_Turmoil_In_Global_Markets_As_Spanish_Domino_Falls.html

Citi’s Economic Surprise Index Takes a Dive

"The last time we posted the Citigroup Economic Surprise Index the market was starting to reverse off new highs as the index was taking a nosedive. It proved a pretty reliable leading indicator. I like this index because of its uniqueness. It’s an intuitive index in that it compares current sentiment to expectations. That is, it compares actual economic data to the analyst’s expectations. So when the analysts finally reverse course and start to downgrade the outlook the index generally leads their views.
The latest readings here show a large reversal from the highs. Analysts are finally starting to follow the data lower so there’s a sort of self equilibrating factor at work in this index. But the following comments bring up an equally interesting point as this index moves lower. Over the last few years the deep moves lower have tended to coincide with policy actions. If there’s one thing we know from recent years it’s that the market is like a crying baby who needs that pacifier in its mouth every time anything starts to go remotely wrong. And central banks have always been there to give it to them. The market obviously let out a wailing scream last week after Ben Bernanke failed to follow-thru with the big QE3 pacifier. But if this index is any indication of what’s to come we are likely on the verge of increasingly aggressive policy talk and action (Via Short Side of Long & Abnormal Returns):

“Economic data has been weakening meaningfully relative to economist’s expectations in every major global region, according to the Citigroup Economic Surprise Indices. Previous instances where economic data disappointed on similar scale, have led to central bank intervention and it is definitely possible we might see that occur again prior to both the US and German elections. Having said that, previous “money printing programs” have only helped the private sector business activity modestly at best, while we have not been able to reached escaped velocity within the current business expansion. In other words, the expansion has failed to become self sustaining. Therefore, ever summer economy weakens, global investors start asking if we are edging closer to another recession?”

at  http://pragcap.com/citis-economic-surprise-index-takes-a-dive

Is There a Limit on Central Bank's Ability to Inflate?

"On Friday, ECB President Mario Draghi announced ECB to Accept BBB- Rated Debt (One Step Above Junk) as Collateral. Reaction from the German central bank was immediate: Bundesbank Swipes at Draghi as European Fault Lines Deepen

“We’re critical of this,” Bundesbank spokesman Michael Best said yesterday. In terms of collateral, “we won’t accept what we don’t have to accept,” he said.

Fault Lines

Looser collateral is the latest issue to divide Europeans days before a summit that Italian Prime Minister Mario Monti said must succeed or risk a bond-market selloff. German policy makers are reluctant to put too much on the line to help debt- strapped nations before they fix their budgets and banks. French and Italian leaders are pushing for a wider range of crisis- fighting tools..."

at  http://globaleconomicanalysis.blogspot.com/2012/06/is-there-limit-on-central-banks-ability.html

Game On! - Italian police seize gold worth €2m at Swiss border

"From The Guardian
Original source

Italian tax police have seized 50kg (110lb) of gold from an Italian businessman at the Swiss border.

The gold, worth around €2m (£1.6m), was found in a hidden compartment in his car last Thursday, the police said on Monday.

The man and his daughter, who was also in the car, were both charged with smuggling.

Italians are believed to have billions of euros in undeclared wealth stashed in Switzerland – funds that Italy is trying to have the Swiss authorities tax retroactively.

Many Italians have also bought gold as a refuge from a worsening European debt crisis..."

at  http://ausbullion.blogspot.com/2012/06/game-on-italian-police-seize-gold-worth.html

The Greatest Bull Market, A Gold Standard & Silver Shortages

"Today acclaimed money manager Stephen Leeb, told KWN, “The world is rapidly heading toward what you would call a ‘de facto’ gold standard” and that we will see “shortages of silver over the next 5 to 10 years, massive shortages.” Leeb, who is Chairman & Chief Investment Officer of Leeb Capital Management, also told King World News that investors are now “looking toward what I believe is going to be the greatest bull market of our lifetime -- the one in junior miners.” But first, here is what Leeb had to say about the situation in Europe: “For a few hours after the Greek results were announced, investors were breathing a sigh of relief. Initially we saw a big uptick in stocks, commodities, but gold was trading lower. Then investors realized the elections didn’t mean a whole lot.”

Stephen Leeb continues:

“At that point you saw gold recover some, while stocks gave up the overnight enthusiasm they enjoyed in the futures markets. At the end of the day, Europe is a mess, and it is still up to the Europeans to decide what to do to get out of this situation.

The strongest evidence of the continued chaos in Europe is a chart of the Spanish bond yields. Spanish bond yields are now approaching 8%. That’s a crazy number...."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/18_The_Greatest_Bull_Market,_A_Gold_Standard_%26_Silver_Shortages.html

Another "We are Saved" Euphoria Lasts Only Moments; European Bond Market Revolts Already as Spain 10-Year Yield Hits Record High 7.28%

"Following news of the victory of the "pro-bailout the French and German banks party" known in Greece as "New Democracy", the euro sailed to 1.2760 and a lovefest in the Asian equity markets began.

However, the rally in the euro did not last long. An there was no rally in the European bond markets to begin with. The US stock market opened in the red..."

at http://globaleconomicanalysis.blogspot.com/2012/06/another-we-are-saved-euphoria-lasts.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

And On With The Great Game

"From Mark Grant, author of Out of the Box

The Great Game

It is the Great Game. They try to lure you into their various traps; I try to keep you out. They offer headlines from countless sources and I try to tell you what things really mean. They make use of a giant propaganda machine and I chant alone in the wilderness. They make up stories and present them as accurate data and I try to give you the facts. They want your money and I want you to “Preserve your Capital.” They are as diabolical in their pursuits as Professor Moriarty was in his. They are the political masterminds and I am a sort of Sherlock Holmes trying to analyze and conclude one case after the other. You may listen or you may not but I pay for my own supper while others ask for their compensation first. It is their Game, my Game; it is the Great Game..."

at http://www.zerohedge.com/news/and-great-game

Forget The Election Results - Greece Is Still Doomed And So Is The Rest Of Europe

"The election results from Greece are in and the pro-bailout forces have won, but just barely. It is being projected that the pro-bailout New Democracy party will have about 130 seats in the 300 seat parliament, and Pasok (another pro-bailout party) will have about 33 seats. Those two parties have alternated ruling Greece for decades, and it looks like they are going to form a coalition government which will keep Greece in the euro. On Monday we are likely to see financial markets across the globe in celebration mode. But the truth is that nothing has really changed. Greece is still in a depression. The Greek economy has contracted by close to 25 percent over the past four years, and now they are going to stay on the exact same path that they were before. Austerity is going to continue to grind away at what remains of the Greek economy and money is going to continue to fly out of the country at a very rapid pace. Greece is still drowning in debt and completely dependent on outside aid to avoid bankruptcy. Meanwhile, things in Spain and Italy are rapidly getting worse. So where in that equation is room for optimism?
Right now the ingredients for a "perfect storm" are developing in Europe. Government spending is being slashed all across the continent, ECB monetary policy is very tight, new regulations and deteriorating economic conditions are causing major banks to cut back on lending and there is panic in the air.

Unless something dramatic changes, things are going to continue to get worse..."

at http://theeconomiccollapseblog.com/archives/forget-the-election-results-greece-is-still-doomed-and-so-is-the-rest-of-europe

Aftermath Of Greek Elections & How It Will Affect Investors

"With many investors wondering what to expect in the aftermath of the Greek elections, today 40 year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States. Here are Fitzwilson’s observations: “Investors and savers alike are transfixed on the election in Greece. The headline issues were whether or not Greece would retain the Euro, stay in the eurozone, return to the drachma, default on the debt owed to European entities or a combination of the above. We believed those outcomes were secondary to the much more important issues.”

Robert Fitzwilson continues:

“We believe there are really three high-level issues contained in this monetary fog. The first is ‘free money.’ From the so-called PIIGS perspective, the euro experiment was about receiving free money from the Baltic-bordered countries. Indeed, an absolute avalanche of money flooded their way, not only from their European neighbors, but also from the rest of the world as the euro was touted as an alternative to the U.S. dollar. 

The money was squandered, but it created huge new demand for products from manufacturing powerhouses, specifically Germany and China. This is called vendor financing. There is an expectation by the lenders of being paid back. Clearly, that is not going to happen....

“The amount of money which is owed is monumentally in excess of the capability of any of the debtor nations to settle their accounts, even if they were inclined to do so. With the French lowering the retirement age, Spain and Greece rioting against austerity, the emphatic answer is that they are not so inclined.

The second issue is the ‘debt as money’ (DAM) monetary system that has overtaken the world in the last 100 years. The Greek debt is held by European entities as assets on their balance sheets. Banks lend based upon their capital base. If the Greeks formally default, the lending ability of the banks is diminished, perhaps catastrophically. 

If a default occurs, how do the banks get recapitalized? What happens to the quadrillion-plus dollars of derivatives? The DAM monetary system is the core asset of those who believe in globalization. It is hard to imagine them giving that up without pulling out all of the tricks from their very creative rabbit hat. Indeed, as the election neared, the major countries released announcements that help would be forthcoming to stabilize things, regardless of the outcome.

The third issue is control of resources. While we were not ready to believe in peak oil 30 years ago, the arithmetic is undeniable, and in our view we are approaching a crisis for the materials that we consume to maintain our global economy and lifestyles. The people in governments around the world know this. Sophisticated investors know this. Behind the curtain, there is a feverous rush by key governments to acquire and stockpile resources before the rest of the world wakes up.

Control of the resources also implies control of the prices. If one is acquiring and stockpiling, stable to declining prices for those resources is very important. There was a potentially ominous development earlier this week when a Chinese entity successfully bid for the London Metal Exchange (LME). 

The LME sets global prices for base metals, with China being the biggest consumer of those metals. According to one estimate, the offer values the LME at 108 times net income. If that does not sound like a motivated buyer, we do not know what would qualify.

If you control the market itself, you can control the prices. We have certainly seen that type of control in the sovereign debt markets as interest rates have been forced down to virtually zero. The rates are decidedly negative on a real basis, regardless of which methodology for inflation is applied.

The best guess we could foolishly hazard about the impact of the election is more of the same. The major players in this game of power need stability for as long as possible. Stability in this case is defined as the absence of chaos and absolute panic.

There will be panic in our future. The arithmetic of the resource depletion, the creation of enormous debt that must be fed by more enormous debt, the derivatives and the increasing desperation and despair in populations around the world guarantees such an outcome.

So what is an investor to do in this environment? As we have suggested before, the mountain of paper and derivatives will collapse under it’s own weight at some indeterminate point. Therefore, it is incumbent upon investors to act now and transfer wealth from paper to real assets. Sadly, reports of Greeks taking cash out of the bank, but leaving it in safe deposit boxes at the same bank tells us that the Greeks have not yet reached the panic stage. They should already be there.

A senior officer in the London Fire Rescue Service was quoted as saying, ‘When people die in fires, it is not because of panic, it is more likely to be the lack of panic.’ The reality is that people generally look to their peers, waiting until the group panics, and by then it is too late.

While it may not quite be time to panic just yet, the survivors, and those who will prosper at the end of this great historic period in our financial affairs, should quietly be moving toward the exits and the safety of hard assets such as gold and silver.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/17_Aftermath_Of_Greek_Elections_%26_How_It_Will_Affect_Investors.html

The NIghtmare Waiting In the Wings

"I know it's not the sort of thing that people talk about when they are focused on what band-aid-cum-can-kicking "solution" authorities are going to come up with in the next 24 hours, but even if by some miracle they sort out the current round of problems, just look at what's waiting for us in the wings:

"Treasurers Face $46 Trillion Financing Cliff" (CFO.com)

A massive amount of global corporate debt matures in the next four years, and it’s causing treasurers to refocus their efforts on securing access to credit.

A measure of the scale of the refinancing problem is revealed in a recent report by Standard & Poor’s Ratings Services. S&P suggests there is as much as a $46 trillion “credit overhang” — the amount of money corporates will need to raise between 2012 and 2016 to refinance their soon-to-mature debts and to fund capital expenditure and working capital growth.

The combination of bank balance-sheet restructuring, a euro zone crisis, a softening U.S. recovery, and the prospect of slower growth in China could make for what S&P calls “a perfect storm” in credit markets. S&P’s working assumption is that “global banks and debt capital markets will largely be able to continue to provide the majority of liquidity to allow most corporate issuers to proactively manage their forthcoming refinancings.” However, S&P warns, “the balance is fragile” and there is the threat of financing disruptions “even for borrowers that are not highly leveraged.”

at http://www.financialarmageddon.com/2012/06/the-nightmare-waiting-in-the-wings.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+financialarmageddon+%28Financial+Armageddon%29

This Resource is the Scarcest and Most Important

"In the history books the 20^th century will go by many names; the American century, the Nuclear century, the science century. The 20^th century could also be called the oil century. When it was discovered that oil could be used as fuel and in various industrial applications, the once low substance became a vital resource over which wars were fought and lands conquered. The 21^st century will likewise go by many names, and one of those names could well be the “water century,” as nations may find themselves embroiled in state-to-state wars and internal civil wars over access to water supplies.
An exploding human population is straining all of the Earth’s resources, none of them more important than water and by 2025 as many as 2.5 billion people could be facing “water based” vulnerability. And with the human population expected to peak at 10.5 billion in 2050, ensuring a stable, safe, and sustainable supply of water is becoming essential.
While water covers about 73 percent of the Earth’s surface, less than 3 percent of that water is fresh, and much of that is now polluted. The importance of water cannot be underestimated. Just look at your own body, about 60 percent of it is water. Further, a healthy person could survive a month or so without food, but few people could survive more than 3 or 4 days without water..."

at http://www.valuewalk.com/2012/06/this-resource-is-the-scarcest-and-most-important/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

Nouriel Roubini: Economic Clouds Are Rolling In From Every Direction – Batten Down the Hatches!

"Dark…financial and economic clouds are, it seems, rolling in from every direction: the eurozone, the United States, China, and elsewhere. Indeed, the global economy in 2013 could be a very difficult environment in which to find shelter..."

at http://www.munknee.com/2012/06/nouriel-roubini-economic-clouds-are-rolling-in-from-every-direction-batten-down-the-hatches/

DAVID ROSENBERG: 51 Signs The Economy Is A Total Disaster

"The U.S. economic recovery has been weak and the looming fiscal cliff threatens to act as a further drag on the economy. Europe is imploding with the chances of a 'Grexit' increasing, and Spain's economy deteriorating and risking contagion.
In his latest report "Charts With Dave", bearish Gluskin Sheff economist David Rosenberg looks at the state of the U.S. and global economy and writes that the recovery isn't where it should be.
"Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments," writes Rosenberg..."

at http://www.businessinsider.com/david-rosenberg-charts-2012-6?op=1#ixzz1y4pJRO34

Greece is a side show now Spain and Italy may need a full bailout

"Nouriel Roubini : " Regardless of Greece elections, if spread remain elevated & rising in Spain and Italy, both may lose market access & need a full bailout " Roubini wrote in Twitter " Indeed Greece is a side show now. Italy/Spain are key @gideonrachman: @Nouriel Spot on Nouriel.Fate of euro will be decided in Spain & Italy " He added " Greece is a side show. Italy & Spain may lose market access & need Troika rescue regardless of Greek elections as Spain bank rescue botched " Roubini explained in a second message " EZ loss of market access & bailout domino: Greece, Ireland, Portugal. Soon Cyprus. Next Spain. Then Italy if Spain goes. Finally France...? "

at http://nourielroubini.blogspot.com/2012/06/greece-is-side-show-now-spain-and-italy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NourielRoubiniBlog+%28Nouriel+Roubini+Blog%29

China Buys London Metal Exchange (LME)

at http://ausbullion.blogspot.com/2012/06/china-buying-london-metal-exchange.html

Greyerz - Governments Stand Ready With Massive Package

"With more bailouts needed in Europe and around the world, today Egon von Greyerz told King World News, “Governments are standing ready with a massive package.” Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland. Von Greyerz also said that because of the money printing, “Gold is on the verge of a major breakout here.” Here is what Greyerz had to say about the unfolding crisis: “In Spain, the interest rate is now 7%, which is totally unsustainable for them. They can’t afford to pay 7% or even 5%. Sales and other economic figures in Spain are collapsing. Retail sales are down 10%. Slovenia is the next country that some are predicting will collapse.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/15_Greyerz_-_Governments_Stand_Ready_With_Massive_Package.html

Gerald Celente - Expect A Tidal Wave Entrance Into Gold

"Today top trends forecaster Gerald Celente discussed gold at length, as well as other important trends with King World News. Celente is the founder of Trends Research, and the man many consider to be the top trends forecaster in the world. Celente predicted, “a tidal wave entrance into gold,” because “the entire financial system is in collapse.” But first, here is what Celente had to say about what is happening around the world: “The highlight for the moment is on Greece, but let’s remember that Greece only counts for 2% of the eurozone GDP. It’s more about publicity. How will it look if they leave? Also, everybody knew that the $125 billion (for Spain) was a drop in the bucket compared to the trillions of dollars of debt.”

Gerald Celente continues:

“What’s going to happen with the Italians with their bond yields skyrocketing? So with each day it’s a new catastrophe. With each new catastrophe you hear the same lines from the central bankers and the politicians, ‘We have to fix this one. If we don’t fix this one, the whole world will go up in smoke.’ So this is really serious.

Start putting the others pieces together..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/15_Gerald_Celente_-_Expect_A_Tidal_Wave_Entrance_Into_Gold.html

Financial System Has Broken Down, The Fix & Where to Invest

"With investors around the world wondering what can be done to fix the broken financial system, today Michael Pento, of Pento Portfolio Strategies, writes exclusively for King World News to let readers know what to expect and how to fix the system as it continues to collapse. Here is what Pento had to say about the situation: “We now live in a phony economic world where central bankers rule without check. Any hint of weakening data, which is actually a sign of reality and healing returning to the economy, is quickly met with the promise of more disastrous money printing. Last week we saw U.S. factory orders down and initial jobless claims rise. In Europe, we saw the Spanish bank bailout fall flat on its face and interest rates spike in Spain and Italy.”

Michael Pento continues:

“Therefore, in predictable fashion, financial markets soared on the premise that the ECB and Fed must imminently ride to the rescue once again. Meanwhile, most mainstream economists are auditioning for a role with the Weather Channel by blaming the persistently weak economic data on a warmer than typical winter.

However, in truth the faltering economy is resulting from the ongoing recession/depression in Europe that will inevitably cause a recession in the U.S., just as it also continues to bring down the growth rate of GDP in emerging markets...."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/16_Financial_System_Has_Broken_Down,_The_Fix_%26_Where_to_Invest.html

This Landmark Survey Says America Is NOT The World's Leading Economic Power

"Whatever the reality, China is now generally perceived as the number one economic superpower in the world, according to research released this week from Pew Global.

Pew Research

Of course, if we talk about "economic power", it's a (probably deliberately) vague question. By size, China clearly isn't beating the US — the IMF puts its GDP at than half of the US size, and GDP per capita is far lower.
If we talk about economic influence, however, the Chinese argument becomes much more complicated, and arguably more pervasive — think of Chinese artificially-controlled yuan, Chinese holdings of US debt, their power over manufacturing sectors.
Looking at the table that shows how individual country's responded, we wonder if respondents themselves were interpreting "economic power" differently. For example, 41% of American perhaps see the news about China's enormous economic growth and think "China is economically powerful".

Pew Research

On the other hand, given their low rating (29%) of their own country, it certainly seems like Chinese respondents may be looking at the higher wealth and living standards of the average American when they answered the question..."

at http://www.businessinsider.com/pew-china-economic-power-2012-6#ixzz1xt2tgQen

Satyajit Das: The Euro-Zone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany!

"Yves here. Das’ post has a lot of useful information, but like a lot of finance people, he is hostage to a conventional markets-driven reading of the issues. Governments are not households or businesses. When the private sector delevers, unless a country is running a big surplus (as Germany is) you can’t have government delever at the same time. So Germany’s notion of virtue (that governments and private citizens should wear an austerity hair shirt) works only for Germany.
There are also ways to prevent an Euro train wreck that don’t involve using German’s balance sheet, such as having the ECB issue bonds, or do revenue sharing (say on a per capita basis, as Marshall Auerback suggested in a NC post). Or the ESM could be given a banking licence via the ECB so that it has the ability to deploy unlimited capital to sort out the solvency issue (as France has suggested). Yanis Varoufakis’ “Modest Proposal” is another approach. But if Germany continues to oppose having the ECB take a much more aggressive stance, Das’ concerns are germane.
By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
It’s now about Germany, not about Greece, Spain, Italy, Ireland or Portugal!
Germany is financially vulnerable. Irrespective of the course of events, it faces crippling costs.
Gas gangrene is a deadly infection that causes massive necrotic damage to tissue. Treatment is by antibiotics and hyperbaric oxygen therapy to inhibit the growth of and kill the bacteria. But if that fails, amputation is necessary. Germany may be in great danger, having left it to late to excise the gangrenous body parts of the Euro-Zone..."

at http://www.nakedcapitalism.com/2012/06/satyajit-das-the-euro-zone-debt-crisis-its-now-about-germany-not-up-to-germany.html

Moody’s Downgrades 11 Banks, as Contagion Spreads

"Moody’s Corporation(NYSE:MCO) has cut the ratings of eleven European banks as the world looks on toward a Greek election this weekend. Moody’s said that a Greek exit from the Eurozone would trigger further downgrades.
The banks downgraded by Moody’s today included five Dutch banks, three French banks and one each from Luxembourg and Belgium. The move follows the recent downgrades of banks from Spain, Germany and Austria in the wake of Spain’s banking problems and growing European worries.
The list of downgraded banks are; Rabobank Nederland, ING Groep N.V. (NYSE:ING), ABN AMRO Group N.V., LeasePlan Corporation N.V., Banqu Federative Du Credit Mutuel, Group BPC, Group CIC, KBC and Banque et Caisse Du Epargne De l’Etat.
There is clearly an escalation in the scale of the European debt and financial crises, at least from Moody’s point of view. The length of time between smaller incidents has become shorter, with Greece’s possible exit just weeks removed from Spain’s near collapse, and the problem is beginning to affect all of Europe more heavily.
For Moody’s that means a swing in the crisis does not just precipitate a downgrade in its particular location but one right across the Eurozone. We’re finally seeing the crisis take its full toll on countries like Germany, and Austria that up until now seem to have their business in order and under control.
Moody’s is with this move predicting the volatility and unpredictability of the days following a Greek exit from the Eurozone. Though it seems almost everyone has a plan in place to deal with that eventuality, the markets are not as confident in the plans of Central banks as they might be if the crisis hadn’t been allowed get this far.
That market instability means money is currently flowing into dollar assets and especially into Treasury Bills. Traders are hesitant to invest in Europe, especially the periphery.
Moody’s may seek to downgrade the European banks further in some weeks if the Greeks do hold true and leave the European single currency. That means little rest for the markets even as the summer. A full break up of the Eurozone will be constantly talked about if the Greek rumours come to fruition..."

at http://www.valuewalk.com/2012/06/moodys-downgrades-11-banks-as-contagion-spreads/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

Nouriel Roubini: Dark clouds are gathering around the world

"Dark, lowering financial and economic clouds are, it seems, rolling in from every direction: the eurozone, the United States, China, and elsewhere. Indeed, the global economy in 2013 could be a very difficult environment in which to find shelter.
For starters, the eurozone crisis is worsening, as the euro remains too strong, front-loaded fiscal austerity deepens recession in many member countries, and a credit crunch in the periphery and high oil prices undermine prospects of recovery. The eurozone banking system is becoming balkanized, as cross-border and interbank credit lines are cut off, and capital flight could turn into a full run on periphery banks if, as is likely, Greece stages a disorderly euro exit in the next few months.
CommentsMoreover, fiscal and sovereign-debt strains are becoming worse as interest-rate spreads for Spain and Italy have returned to their unsustainable peak levels. Indeed, the eurozone may require not just an international bailout of banks (as recently in Spain), but also a full sovereign bailout at a time when eurozone and international firewalls are insufficient to the task of backstopping both Spain and Italy. As a result, disorderly breakup of the eurozone remains possible. - in his latest Project Syndicate article"

at http://nourielroubini.blogspot.com/2012/06/nouriel-roubini-dark-clouds-are.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NourielRoubiniBlog+%28Nouriel+Roubini+Blog%29

Norcini - European Crisis & Bullion Banks Capping Gold

"With continued volatility in global markets, today King World News interviewed highly acclaimed trader Dan Norcini. Norcini told KWN that “gold was being capped by the bullion banks at that ($1,630) level.” Norcini also discussed the crisis in Europe and how it is impacting key markets. But first, here is what he had to say about the recent action and what investors should expect going forward: “Markets are marking time ahead of the all-important Greek election this weekend. Investors and professionals are waiting to see if the euro, as we currently know it, is going to survive. There is still uncertainty surrounding whether Greece will leave the euro or not.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/14_Norcini_-_European_Crisis_%26_Bullion_Banks_Capping_Gold.html

'The Whole World Economy Is On a Path Towards Some Major Collisions -- Dislocations -- Towards the End of This Year'

"Here's today's economic reality check, courtesty of David Stockman, former budget director in the Reagan Administration and author of The Great Deformation: How Crony Capitalism Corrupted Free Markets and Democracy, due out in January (via Fox News):..."

at http://www.financialarmageddon.com/2012/06/the-whole-world-economy-is-on-a-path-towards-some-major-collisions-dislocations-towards-the-end-of-t.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+financialarmageddon+%28Financial+Armageddon%29

The Crisis Shifts to Italy

"As we head towards Greece’s weekend election, rumoured to be celebrated by the locals by moving ever larger sums of money elsewhere, the Eurozone appears to be seriously straining under the constant pressure of its ongoing crisis. I have long felt that Italy would be the limit for the monetary union, most notable for its sheer size, and due to this I expected much more decisive action, one way or the other, once the crisis returned to Italian shores.
Last week I noted a warning from the head of the IMF suggesting Europe only has a short period of time left and did wonder whether it was triggered by growing concerns that Italy was next after Spain:

As the clock ticks down to Greece’s crunch election on June 17, which is being seen as a referendum on the country’s membership of the euro zone, the warnings that European leaders need to act to prevent a collapse of the currency union are getting stronger by the day.
Now, Christine Lagarde, head of the International Monetary Fund (IMF), has warned that the euro zone has less than three months to get its act together. In an interview broadcast on Monday evening, Lagarde told the television station CNN that action to save the euro is needed in “more shortly (sic) than three months.” She was referring to a recent prediction by billionaire investor George Soros that Europe has three months to save the euro..."

at  http://www.nakedcapitalism.com/2012/06/the-crisis-shifts-to-italy.html

We Will Now See Extreme Turbulence in Global Markets

"Today top Citibank analyst, Tom Fitzpatrick, warned that despite the initial enthusiasm surrounding the Spanish bank bailout, “this is yet another over-promise, under-deliver dynamic coming out of Europe.” Fitzpatrick, a 28 year veteran and top analyst at Citibank, which has $1.3 trillion in assets, also said, “we are moving to the point where we’re no longer going to be able to see the stabilization on false promises and under-deliveries.” He also remained bullish on gold and let KWN readers know when the attention will shift to the problems in the US. But first, here is what Fitzpatrick had to say about the ongoing crisis: “Well, obviously this past weekend we had the announcement that we were going to see some type of bailout package for Spain. But I think as we move through this week there is a certain amount of disillusionment as people look at the structure of it.”

Tom Fitzpatrick continues:

“At the end of the day you are getting a sovereign nation that people are already concerned about in terms of their borrowings. Now Spain is looking to borrow even more money to give to the banks. You are not getting a European type of solution. So we saw a lot of euphoria on Sunday night and early Monday, but that seems to have dissipated.

We just had the announcement that Moody’s is downgrading Spain, so equity markets came off late in the day. At the same time we’ve seen the yields in Spain and Italy go straight up again, pushing right back towards the trend highs...."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/14_We_Will_Now_See_Extreme_Turbulence_in_Global_Markets.html

Hathaway - Gold, Mining Shares & QE: 2 Persistent Questions

"The protracted correction in gold and precious metals stocks that began in September 2011 appears to have ended. Our conclusion is based on historically reliable gauges of sentiment, valuation and technical factors. (We will publish the specific readings on these gauges with our second quarter investment letter on June 30.) This basing, in our view, should establish a solid platform to launch both the metals and the related mining shares to new highs within the next year. The investment sentiment for gold and especially mining shares is demoralized and confused. This setting, in our opinion, equates to an outstanding, low risk entry point to both the metals and the shares in anticipation of future monetary debasement.

Question # 1: Gold Price Outlook and QE

The fundamentals that led gold to trade briefly above $1900/oz. nine months ago are, if anything, more compelling and supportive than ever. These include, but are not limited to, sputtering economic conditions, intractable fiscal issues in all Western democracies, the slow motion demise of the euro as a credible reserve currency, a loss of faith in traditional economic prescriptions, alarm at the readiness of policy makers to resort to radical, ad hoc measures to buy time, and general disaffection among disparate social factions with the status quo.

Traditional economic analysis seems to offer little to explain the contemporary social and economic drift. In our opinion, more enlightenment can be found in the study of complex systems and chaos theory. As explained by James Rickards in “Currency Wars”, systemic scale and risk correlate in a positive way. What works on a smaller scale does not translate to large systems. 

In large systems, “minutely small changes in initial conditions can lead to catastrophically different results.” The extrapolation of outcomes based on historical models and policy applications is a fruitless exercise. The evolution of Western democracy over many decades has resulted in a systemic structure that bears no resemblance to precedent. Rickards notes that “a phase transition from stability to collapse can begin in imperceptible ways based on tiny changes in individual preferences impossible to detect in real time.”

Citing the work of anthropologist Joseph Tainter (The Collapse of Complex Societies) who analyzed factors leading to the collapse of 27 civilizations, Rickards suggests that highly evolved societies generate the seeds of their own instability through complexity. The marginal benefit gained from contributing to the general well-being eventually vanishes as creative energy is diverted into propping up cumbersome and unproductive legacies. Rickards explains that the crossover occurs when the “elite echelons of society go from leading to leeching.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/14_Hathaway_-_Gold,_Mining_Shares_%26_QE__2_Persistent_Questions.html

Acemoglu and Robinson: Why Nations Fail

"Countries differ in their economic success because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people,” write Acemoglu and Robinson. Extractive institutions, whether feudalism in medieval Europe or the use of schoolchildren to harvest cotton in contemporary Uzbekistan, transfer wealth from the masses to elites.

In contrast, inclusive institutions—based on property rights, the rule of law, equal provision of public services, and free economic choices—create incentives for citizens to gain skills, make capital investments, and pursue technological innovation, all of which increase productivity and generate wealth. Economic institutions are themselves the products of political processes, which depend on political institutions. These can also be extractive, if they enable an elite to maintain its dominance over society, or inclusive, if many groups have access to the political process. Poverty is not an accident: “Poor countries are poor because those who have power make choices that create poverty.” Therefore, Acemoglu and Robinson argue, it is ultimately politics that matters.

The logic of extractive and inclusive institutions explains why growth is not foreordained. Where a cohesive elite can use its political dominance to get rich at the expense of ordinary people, it has no need for markets and free enterprise, which can create political competitors. In addition, because control of the state can be highly lucrative, infighting among contenders for power produces instability and violence. This vicious circle keeps societies poor.

In more fortunate countries, pluralistic political institutions prevent any one group from monopolizing resources for itself, while free markets empower a large class of people with an interest in defending the current system against absolutism. This virtuous circle, which first took form in seventeenth-century England, is the secret to economic growth."

James Kwak, Failure Is An Option, A Review of Why Nations Fail

As you know I have often said that in a sovereign fiat currency, inflation and deflation are a policy decision.

Acemoglu and Robinson take this premise a broad step further, and show through many historical examples that national success or failure, as one might define it in terms of the broadest happiness and success for the most people, is also the result largely of policy decisions.

Neither austerity or stimulus will be effective in restoring growth to the American economy. Most if not all of the pain of austerity will fall on the hapless victims and the disenfranchised innocent, while most of the profits of recovery through stimulus will flow to the one percent. No matter what strategy you may employ, it is difficult to be successful against a stacked deck in a rigged game.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery..."

at http://jessescrossroadscafe.blogspot.com/2012/06/acemoglu-why-nations-fail.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Cold War 2.0 Has Begun … In Syria

"...Russia has repeatedly stated that it would consider an attack on Syria as an attack on its national security. (And Russian Prime Minister Dmitry Medvedev said that if the U.S. invades the sovereignty of countries like Syria, it could lead to nuclear war. And see this.)

Now, Russia is selling attack helicopters to the Syrian government, and defending the sales because the U.S. is supplying rebels with weapons to fight against the government.

Cold War 2.0. And this time, China may participate.

Of course, Iran and Syria have had a mutual defense pact for years. So war in Syria could well drag Iran into a hot war."

at http://www.zerohedge.com/contributed/2012-06-13/cold-war-20-has-begun-%E2%80%A6-syria

Government Can’t Prevent the Next Financial Diaster – Here’s Why

"Even as I write these words, the world’s largest economy — the E.U. — is coming unglued at the seams, the world’s second largest — the U.S. — is careening headlong toward a fiscal cliff that promises to gut its GDP, nearly all of Asia — including Japan, China and India — is slowing…and yet most investors still don’t get the message.

Investors are continuing to:

• invest as if nothing has changed
• take risks that, in prior eras, would have been deemed wildly imprudent
• hold massive sums in banks that are akin to gambling casinos and even when they DO rush to safety, they often jump from the frying pan into the fire,
• buy the bonds of some of the most fiscally bankrupt governments on earth.

Why? There can only be one possible explanation for this pathological complacency – die-hard faith in the supposedly “limitless power” of government to prevent financial disasters.
The origins of the complacency are not hard to see:

• every time a major financial disaster has struck in recent years, Big Government has swooped down like Superman to supposedly rescue the victims and,
• every time global financial markets have come to the brink of a total meltdown, Big Government has pulled them back from the abyss.

It’s only natural for investors to sit back in a state of semi-eternal bliss, assuming governments will continue to do the same, but there are three major flaws in that assumption:
Flaw #1: Governments rarely prevent financial collapses — they almost invariably intervene only AFTER the collapse has struck.
History proves that it’s only at an advanced stage of the crisis that governments can gather the political and financial capital to respond. Result: By the time the official rescue squad finally reaches the scene of the disaster, countless investors are already buried under the rubble.
Flaw #2: Almost invariably, the government’s priority is to bail out bond investors and other creditors. Stock investors are last in line. Even when the rescues are “successful,” they often wind up with little more than pennies on the dollar.
Flaw #3 — the biggest of all: For the first time in modern history, governments themselves are in need of the giant bailouts. Needless to say, this raises serious doubts about their future ability to rescue bankrupt banks, insurance companies or industrial conglomerates. This is not just a theory about the future. It’s a very practical matter facing local, state and federal government all over the world — insufficient funds!..."

at  http://www.munknee.com/2012/06/government-cant-prevent-the-next-financial-diaster-heres-why/

Foreigners Beware: U.S. Treasury Maturity Dates are Alarming

"While many investors want to believe that U.S. treasuries are a safe haven, I will use this article to debunk that myth with plain hard evidence…[to support my contention that] holding U.S. bonds is the worst investment going forward.

A look at the debt maturity graph below (chart 1) tells us that most of the U.S. debt is short term debt payable within 5 years. The scary part is that it is such a huge amount (approx. 2.5 trillion U.S. dollars)….Even more scary is that the U.S. treasury is not transparent about its debt maturity report. Chart 1 was published in February 2010 and hasn’t been updated since then. Also, Ben Bernanke is allegedly trying to make us believe that most of the debt is long term, which it is not (source: Ben Bernanke at Fed meeting on 7 June 2012).

Chart 1: U.S. Treasury Debt by Year of Maturity

Fed Holdings of U.S. Treasurys by Years of Maturity
At end of June 2011, foreign holdings of short term debt (less than 1 year) was 881 billion dollars amounting to 87% of the total (the Fed holding the balance)….This is the most crucial and important debt…[because] interest rates…rise….when a country is in a default…[that is,] short-term debt securities have higher yields than long-term debt securities….[Because of that fact] Marc Faber…[is of the opinion] that one day foreigners invested in U.S. debt will not be paid back. They are holding all the short term debt, while the Fed is holding the long term debt.

Chart 2: Fed Holdings of U.S. Treasuries (billion US dollar)

Average Maturity Date of Treasury Debt

at http://www.munknee.com/2012/06/foreigners-beware-u-s-treasury-maturity-dates-are-alarming/

Gold Reserves: Who Are the 10 Biggest Owners – and How Soon Might China Become #1?

"China currently is a distant 5th behind the U.S. in the extent of gold reserves it currently owns but gives every indication that it is intent on adding more. How long might it take for China to be number one in gold reserves?

The latest data (end of 2011) on gold reserves is given below (CNBC):
1. United States: 8,965.6 tonnes
2. Germany: 3,743.7 tonnes
3. IMF: 3,101 tonnes
4. Italy: 2,702.6 tonnes
5. France: 2,684.6 tonnes
6. SPDR Gold ETF GLD: 1,213.9 tonnes
7. China: 1,161.9 tonnes
8. Switzerland: 1,146.5 tonnes
9. Russia: 960.1 tonnes
10. Japan: 843.5 tonnes
We already know China bought approximately 240 tonnes gold since 2012 started. This puts China’s gold reserves at 1400 tonnes. If China were to buy more than 100 tonnes of gold each month and if we assume that the United States doesn’t increase its gold reserves, China will catch up with the United States in approximately 6 years and 3 months..."

at http://www.munknee.com/2012/06/gold-reserves-who-are-the-10-biggest-owners-and-how-soon-might-china-become-1/

World Chaos Erupting as Governments & Institutions Collapse

"With mounting worries about the financial systems of Europe and the US, 40 year veteran, Robert Fitzwilson wrote the following piece exclusively for King World News. Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States. Here are Fitzwilson’s observations: “The financial markets continue to show extreme volatility as the various institutions and governments deal with the end of their respective roads. The announcement regarding the bailout of the Spanish banks created euphoria as markets opened around the world, but the euphoria quickly dissipated. Governments, economies and societies are converging on a common dead end, and it is a dead end of historic proportions.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/12_World_Chaos_Erupting_as_Governments_%26_Institutions_Collapse.html

Embry - Despite Rally, Global Financial Crisis II Is Imminent

"Today John Embry told King World News that, despite the rally, investors should brace for “global financial crisis II.” Embry also said this crisis will be “more unpleasant than the first one.” Embry, who is Chief Investment Strategist of the $10 billion strong Sprott Asset Management, also told KWN that gold and silver will reign supreme during the upcoming turmoil. But first, Embry had to say about the Egon von Greyerz prediction of a massive global bailout: “I believe that’s very realistic. They will go down the path of trying to continually bail this system out to prevent a collapse. Nobody wants to be at the helm when the ship goes down, so they will try to move heaven and earth to prevent that.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/12_Embry_-_Despite_Rally,_Global_Financial_Crisis_II_Is_Imminent.html

Is Italy Next?

"The initial market enthusiasm for the bailout of Spain’s banks seems to have faded, as reality sets in. What will be done with Portugal, Ireland and Greece is secondary to what happens with Spain and perhaps more importantly Italy, the 4th largest economy on the continent.
Here is Bloomberg:

“The 100 billion-euro ($126 billion) rescue for Spain’s banks moved Italy to the front line of Europe’s debt crisis as an initial rally in the country’s bonds fizzled on concern it may be the next to succumb. Italy’s 10-year bonds reversed early gains today in the first trading after the Spanish bailout and fell for a fourth day, sending the yield up 20 basis points to 5.98 percent . . .
Italy has 2 trillion euros of debt, more as a share of its economy than any developed nation other than Greece and Japan. The Treasury has to sell more than 35 billion euros of bonds and bills per month — more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.”

Italy is a huge economy, and any danger there has enormous repercussions..."

at http://www.ritholtz.com/blog/2012/06/is-italy-next/

China Announces How It Would Go To War Against The US Fleet

"The U.S. has made no secret that it's pulling its focus from the Middle East and directing military attention to the Pacific, and now China is pushing back.

The Economic Times reports China is increasing its conventional missile capability to carry out multiple launches, the one tactic that could overwhelm a Navy ship's defenses and cripple its abilities.
Tan Weihong, Commander of China's Second Artillery Force says, "Conventional missiles are a trump card in modern warfare. So we must be ready at any time. We must be able to deliver a quick response to attacks, hit the targets with high accuracy, and destroy them totally. Of the 114 missiles [our brigade] has launched so far, all have accurately hit the target."


at http://www.businessinsider.com/china-announces-how-it-will-decimate-the-us-fleet-should-conflict-ever-break-out-2012-6#ixzz1xVf4InyV

Guess What Else China Is Hoarding

"We already know that Chinese imports of HK gold passed all records in the month of April. It appears that the precious metal is not the only hard asset that China has set its sights on.

From BBG:

China imported a net 25.3 million metric tons of crude in May, or 5.98 million barrels a day, up 10 percent from April, customs data showed yesterday. The previous record was 5.87 million barrels a day in February. Purchases cost an average of $120 a barrel, compared with about $123 in April, the data showed.

And visually:



at http://www.zerohedge.com/news/guess-what-else-china-hoarding

Massive Worldwide QE Coming – but With NO Exit Strategy! Here Are the Consequences

"On the heels of Spain asking for $125 billion to bail out their collapsing banking system…there will be a massive worldwide package coming out between the Fed, the ECB, the IMF and other central banks. The money printing is imminent. As I see things, we are on the road to perdition,…there is no exit strategy for the world (to get) out of these problems. There is no solution. If you look at what happened in 2008, people thought that was bad, but what’s going to happen, starting this year and in the next few years, will make 2008 look like a small rehearsal because the real collapse is going to start now..."

at http://www.munknee.com/2012/06/massive-worldwide-qe-coming-but-with-no-exit-strategy-here-are-the-consequences/

Martin Armstrong - Is Chaos Around the Corner?

at http://ausbullion.blogspot.com/2012/06/martin-armstrong-is-chaos-around-corner.html