Saturday, January 16, 2010

Jan 16.09 commentary.

Good morning Ladies and Gentlemen:
Gold closed down by $12.50 to 1130.10  Silver fell by 23 cents to 18.41.
The volume on the gold comex Thursday was estimated at around 175000 contracts.  In reality the volume turned out to be a huge
The price of gold and silver rose on Thursday.  Demand throughout the world was high for the precious metals.
In strange fashion, the OI for the gold comex rose by only 219 contracts ti 521929,
The silver OI went up on a higher percentage by 322 contracts to 130,337,
With demand for gold and silver rising, it now seems that the GLD and SLV are becoming a source of inventory for gold and silver raids.
On Thursday, we saw the GLD report on this:
MarketVanes’s Bullish Consensus for gold gained a point to 82% while the HGNSI was unchanged at 60.9%. Continuing on its idiosyncratic way, the GLD ETF shed another 2.13323 tonnes to 1,113.75033 tonnes. Since the end of 2009, gold has gained $47, or 4.3% while the GLD has dropped 19.87165 tonnes, or 1.75%. NY open interest (up to Wednesday) had gained 31,971 lots - 6.5% or 99.44 tonnes.
Thus we witness again a shedding of 2.133 tonnes of gold.  All gold and silver raids are preceded with a small liquidation of metal from the GLD
On Thursday, for the first time in 6 months we saw the liquidation of 5 million oz of silver.
There is no doubt that the liquidation is done with the vehicle undergoing a massive shortfall in the shares issued.  In other words, investors are buying
gold and silver with the expectation that the GLD and SLV are  taking the added demand and buying the underlying metals.  They are not.  Thus the GLD and SLV are issuing shares with no metal backing the added demand, totally contrary to the prospectus.
As for news on the CFTC position limits here are a few commentaries.  I will then give you my own view on the situation.  Here first is Bill Holter
The COT report released after the market closed showed that one bank JPMorgan was responsible for the addition of 4 million of gold short.
We also saw similar deterioration in the COT report on silver where JPMorgan took 75% of all additional short trades.
If JPMorgan did not provide the shorted paper, the price on silver and gold would be exponentially higher.  There is no economic basis for JPMorgan to continue shorting the gold and silver metals.
In silver they are short over 200 million oz.

Bill H:

This food fight needs a hall monitor!

To all; the metals community is having a food fight and it looks like we need a hall monitor, I guess I will volunteer for the job. Jason Hommel (of Silver fame) has e-mailed back and forth with several of his clients and Bart Chilton of the CFTC. As many of you know Bill Murphy of GATA and Ted Butler (Dean of the school of Silver) have also been in contact with Bart Chilton for over a year now regarding position limits for both Gold and Silver on the COMEX exchange, in particular why has the massive short position in Silver been allowed? I received Jason's daily e-mail last night and it seems we have a food fight in the early stages on our hands.

While Bill Murphy and Ted Butler believe Mr. Chilton to be a nice, honorable guy and believe Mr. Chilton should be given more time, Jason has a different take and I understand why. Mr. Chilton has told the "metals community" over a year ago that the CFTC would investigate Silver and "get back to us". Apparently the CFTC will have a forum in a couple weeks to take suggestions, discuss their findings etc. To make a long story short, Jason has printed copies of his e-mail exchanges where Mr. Chilton has allegedly ended the discussions with a very loud "F OFF"! IF this is true Mr. Chilton should be canned by the CFTC on several grounds not the least being poor public relations and a very foul mouth. He would have been far better off by not responding. The following link is the e-mail Jason sent out yesterday so you can get the full picture from his point of view.

OK so here is my take for what it's worth and I hope no one gets offended because no offense is intended. First off the entire situation is MOOT or could be. It is obvious to me that Silver is being manipulated worse than any child in the middle of a divorce but if people (investors) would just avoid COMEX and ETF's or buy only the spot month and demand delivery who would care what these cheating rocket scientists say Silver is worth 6 months from now? If people would just buy the real deal with no margin and have it delivered then the CFTC would not need to whitewash a crooked COMEX and Murphy, Butler, and Hommel would have their "true price discovery" that we all deserve!

Yes I agree with the concept that Bart Chilton and the CFTC should have been given time to figure out what was going on with Silver and he was nice enough to respond to the 1,000's of e-mails complaining and alleging price fixing and manipulation, BUT he and the CFTC have had over 16 months to discover and figure out that surely something is rotten in Denmark! So what's the deal Mr. Chilton? Even the little girl that gets pissed off because she got a paper pony and not a real pony could figure out in less than a day that COMEX is crooked, manipulated and run by a den of thieves while the CFTC has been looking the other way!

In my opinion IF the CFTC commissioners were truly honorable they would have already resigned out of disgust and left the job open to those who were not honorable and were willing to look the other way. So whoever currently has the job and has not resigned already has no excuse for what is about to happen in the metals markets. As for Mr. Murphy and Butler, I know the government wheels turn slowly but wouldn't 3 months have been enough time to see the problem and deal with it? When I say deal with it I mean identify the illegal positions, get them shut down and slap the perpetrator (privately if you want, publicly if you want to follow the law) and get the market cleaned up for real and true price discovery. Isn't it obvious by now that since the amount of "paper" Silver sold short has increased from $100 Billion to $200 Billion over the last year while global production is something like $10 Billion, the COMEX market is fraudulent by ANY definition imaginable? If the short position DOUBLED while the CFTC was supposedly "investigating", doesn't that say something? Even an arrogant idiot who makes a living as a thief will not try to rob a bank while a police convention is going on inside and we are supposed to believe the CFTC just "doesn't see it"? This is so simple and obvious to me that the CFTC and Mr. Chilton get no pass from me whatsoever, they are not doing their jobs and should be removed! I think both Bill Murphy and Ted Butler want to give Bart the benefit of the doubt and is many times a good quality but in this instance I think they are fooling themselves, we will see. The time already elapsed and expansion of the short positions this past year is proof enough to me that the CFTC is not the answer.

As for Jason, I like to read his pieces and laud him for his detective work and ability to connect the dots but after reading his e-mails to Mr. Chilton I think he may have irritated Mr. Chilton with his tone of e-mails. I am a very straight forward person who from time to time tends to piss a few people off (just a little rough around the edges so to speak) but even I know you can't get anywhere with an e-mail by calling someone "ignorant", a "burnt brick" and then going on to threatening the man. I read further on that Bart "shouldn't consider this a threat". I certainly would consider it a threat and would probably come looking for you myself if it had been written to me! One last point here, I am a God fearing person and have religion but there is no place for religion when communicating with a government official. For that matter I have seen several financial scams that were perpetrated from behind the cross and is the reason I will not mix any business with a "holy roller". Business is business and should (but can no longer) be done on a handshake. Religion is my choice, your choice, a personal choice. I have no right to impose my religion on anyone else nor does anyone have the right to impose their's on me. In my opinion business is mathematics and a deal struck whether in writing or word should be honored by both parties, God has nothing to do with honoring your word in a business deal. Let's just call it separation of church and state.

In any case, Bill Murphy, Ted Butler, and Jason Hommel amongst others have hit the COMEX nail on the head for years now. They have all come at it from different directions with different methods for remedy but each has "discovered the truth". We as a community with our common sense heads screwed on correctly should go forward in unity not as an angry mob fighting amongst ourselves. I for one believe the CFTC route is pointless, the "courts" route will certainly spread knowledge if nothing else but Mother Nature will ultimately be the cure! My Dad always told me that "water always seeks its own level and cream rises to the top". I believe he was exactly correct and ultimately "bad money will drive good money into hiding". Mathematically the Gold and Silver markets will explode upward and all the paper promises will default because the physical metal simply does not exist.. Will it be today, tomorrow, next month? I don't know and do not care! I have decided not to trade so the timing doesn't matter, the only thing that IS important is my knowledge that the fiat system WILL collapse and leave those with fiat assets bankrupted. We have fought this battle for over 10 years now, whether the whole thing blows up 3 or 6 months sooner, or later, it just doesn't matter. We all need to be thankful to the Murphy's, Butler's, and Hommel's of the world for giving us the heads up to the massive fraud known as the COMEX! Peace amongst us huh?! Regards, Bill H.


Second:  Dave Kranzler;

Friday, January 15, 2010

Will The CFTC Actually Regulate Gold and Silver Futures Positions?

Short answer: "No."

If you read thru the following analysis from the Financial Times and assume that the CFTC might adopt similar rules for gold/silver trading, then the conclusion is that the CFTC will do nothing more than spray Godzilla with some bug spray. This would be 100% consistent with everything else the Obama Administration has done with regard to reform which, "appears" to protect the public against predatory big financial firms and corporations, but does nothing to actually Change the corrupt reality. Here are some key points:

"Thursday’s CFTC proposals on position limits in the energy markets were largely seen as a ‘light touch’ by industry voices. This is because, quantifiably speaking, they set loose limits that hardly went beyond those already enforced by exchanges in the form of accountability limits"

"First, they appear to have ruled that passive long-only funds (along with funds generally) would never be eligible for exemptions.

Second, they initiated a "limited risk management exemption" for swap-dealers who were previously eligible for bona fide hedger exemptions;

Third, they appear to classify the speculative operations of bona fide hedgers and swap-dealers completely separately;

Meanwhile, it could also have a bearing on the prop desks of banking institutions — although it’s not clear to what extent a physical presence on the prop side could offset the restrictions."

Here's the link: The CFTC: Nothing Is But What Is Not

My conclusion is that the CFTC, in a manner consistent with all Government actions w/regard to big banks, will put in some kind of enhanced regulation that will be nothing more than form with very little substance. In fact, if the above analysis is accurate, it would appear that regulation would be headed in the direction of making it even more difficult for a big speculative fund to take on a big concentrated long position as a way to speculate against the big bank shorts. It also looks like there will be loopholes large enough to drive an army of tanks thru. I stand by my call that the CFTC will do nothing to stop the large concentrated short positions in gold and silver - nothwistanding some form of regulation that does nothing more than patronize the public but does nothing of substance.

In fact, my new expectation is that any CFTC regulation in the metals will make it more difficult for speculators to trade and make it even easier for the big banks to rape and pillage the gold and silver paper markets. Sorry Ted. (Everyone should read the 1st comment posted below)


Third:  Bill Murphy:

The chairman of the CFTC is a Goldman "Hannibal Lecter" Sachs guy. I can't think of a worse man to be at the helm of the CFTC who would make any meaningful changes that might affect Goldman Sachs and JP Morgan negatively. Throw a few other major bullion banks into that lot.

That's not where my hope is, as I mentioned the other day. It is to focus the investment world, and anyone else who will be objective, on the concentrated positions and what that means ... to do what we can to open up some floodgates on the GATA issues of the past decade. These hearings, and what surrounds them, give us a shot.

One of the aspects of GATA I am proudest of is that we get off our arses and go places, or do things like major conferences, to rectify this gold/silver market manipulation mess. We have been doing so for a decade. I have met Bart Chilton, only one that I know of who has, and I can tell you he is a good man ... and probably the only one around the CFTC who is sympathetic to our views. The ONLY reason there will be hearings is BECAUSE OF Bart Chilton. Does anybody know anyone else who has responded to the public by email like Bart has?

My point is now is the time to mount a campaign to get the serious issues of market manipulation raised ... to do what we can to get others to address them. To give you an idea how that is even quite the battle, note the comments by supposed gold/silver experts in the Reuters piece. The people quoted are the most clueless bunch in any industry in history. This lightweight reporter Frank Tang knows very well where GATA comes from; that it is a major issue of ours; yet look who he interviews. The main reason for the gold/silver hearings in the first place is not addressed by any of them. Are they that dumb or just disingenuous?

The same is true of GATA's lawsuit against the Fed. We have to find a way to get people just to address what our FOIA issues are all about and come up with their own commonsense analyses of why the Fed is stonewalling GATA.

The same is true of the coming CFTC hearings.

There is a growing populist movement in America. The people are fed up with how one Administration after another kowtows to the big banks, while they get screwed over. Sound familiar? It is why Congressman Ron Paul is getting so far with his Audit the Fed bill. It is time for our camp to pull together and do what we can to enhance that populist movement and to give Americans something to really chew on, with facts to back that chew up.

It won't be easy. Nothing has been easy for GATA the last decade. But, little by little, we continue to make progress. Let's be creative and find ways to win the day around our Fed lawsuit and the CFTC hearings.

And for goodness sake, give Bart Chilton a chance. He is the one person I have come across this past decade who gives a crud. With him there, there is a shot and we have someone who can allow our views to be heard. Without him, there is no shot at all.

Here is my take on the situation.
The comex knows that a default is imminent. It knows it is impossible to put on position limits without breaking the back of JPMorgan.  It knows that
they allowed criminal activity to occur on their watch.
They will try and prolong the implimentations of position limits as long as possible while trying to show that they are trying to fix the problem.
JPMorgan will probably fall due to derivative problems with their interest rate swaps and other derivative underwriting initiated by these dubious bankers.
On the other side of the coin, many well respected analysts on the silver and gold front will present documentation on the massive fraud perpetrated by JPMorgan.
The hearings in March should be very interesting for all to hear.
Lets go to other economic news of the day:
Most missed this:

Fed's balance sheet grew by some $58 bln last week, I'm assuming most of it mortgage associated cr*p!

Fed's balance sheet liabilities hit record
Thu, Jan 14 17:41 PM EST

NEW YORK (Reuters) - The U.S. Federal Reserve's balance sheet rose to a record level in the latest week, boosted by its ongoing efforts to support the mortgage market, Fed data released on Thursday showed.

The Fed's balance sheet -- a broad gauge of its lending to the financial system -- rose to $2.274 trillion in the week ended January 13 from 2.216 trillion in the prior week.

Note the huge rise in their balance sheet of 58 billion dollars for the week ended Jan 13.10 
The gain, from 2.216 trillion to 2.274 trillion was solely due to purchases of mortgaged back securities.
If you recall, the Fed publically stated that they were looking at ways to withdraw all the liquidity that they created.
It told you that it would be impossible to withdraw any liquidity at all.  This liquidity is supporting the market and any withdrawal would
through the economy into a death spiral.
Here are some of the stories that show how the massive 13 trillion dollars in liquidity have supported the market.
First story, the consumer price. 

U.S. consumer price rise slows in December

WASHINGTON (Reuters) - U.S. consumer prices rose more slowly than expected in December from November on modest gains in food and energy costs, data showed on Friday, pointing to subdued inflation pressures that should permit the Federal Reserve to keep interest rates low for a while.

The Labor Department said its Consumer Price Index rose 0.1 percent last month after rising 0.4 percent in November.

Analysts polled by Reuters had forecast consumer prices rising 0.2 percent in December.

Price rises slowed as gasoline increased 0.2 percent after surging 6.4 percent in November. Food costs increased 0.2 percent last month after gaining 0.1 percent in November.

Compared to December 2008, prices rose 2.7 percent, the largest gain since 2007, the department said.

Excess slack in both the industrial sector and the labor market are keeping inflation pressures muted. The Federal Reserve has promised to keep overnight lending rates near zero for an extended period of time to help the economy recover from its worst recession in 70 years.

Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation edged up 0.1 percent in December after being flat the prior month. That was in line with market expectations for a 0.1 percent gain.

Core prices were lifted by rising prices for used cars and trucks, but shelter costs were flat and prices for new vehicles fell. High vacancy rates are keeping rentals depressed.

Compared to December 2008, the core inflation rate rose 1.8 percent, after increasing 1.7 percent in November.


The next three numbers show strength in the empire or NY manufacturing area as well as consumer confidence and industrial production.
Here are the stories on this front:

09:15 Dec Industrial Production 0.6% vs. consensus 0.6%; Capacity Utilization 72.0% vs. consensus 71.8%
•Nov Industrial Production revised to 0.6% from 0.8% 
•Nov Capacity Utilization revised to 71.5% from 71.3% 
* * * * *

08:30 Jan Empire Manufacturing 15.92 vs. consensus 12
Dec reading was revised to 4.50 from 2.55. 
* * * * *

09:55 Jan preliminary University of Michigan Confidence 72.8 vs. consensus 74.0

The final December reading was 72.5. 
* * * * *

This week we have seen a "very successful" auction on bonds.  For the past 6 months we have seen indirect bids approaching 60%
which generally means government.
This week, we have seen a change.  The direct bid on top of the dealers have advanced from 6% of the bid to 25% of the bid.
What is going on?  Is there some country lurking behind the scenes demanding massive amounts of usa treasuries out of site from the
normal public channels?
Here is the King Report which touches on this.  His conclusion is left to us in his last question to us:

From The King Report…

The FT: Treasury bids drive speculation Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.

The surprising demand for Treasury notes has come in the form of "direct bids", the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales.

On Wednesday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10- year Treasury auction since May 2005.

On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.

Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.

"It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market," said David Ader, strategist at CRT Capital.

Is it China or the Fed?

Two news events caused the Dow to falter badly.  One was disappointing news out of JPMorgan and the other credit card losses and
Here is the report on Capital One Credit Charge-Offs which rose to double digits for the first time ever:

Capital One US credit card charge-offs hit 10 pct

* U.S. credit card charge-off rate 10.14 percent in Dec

* U.S. credit card delinquency rate 5.78 pct in December

NEW YORK, Jan 15 (Reuters) - Capital One Financial Corp's U.S. credit-card charge-offs rose to double digits in December, showing consumers became increasingly stressed in the holiday shopping month.

In a regulatory filing on Friday, Capital One said the annualized net charge-off rate -- debts the company believes it will never collect -- for U.S. credit cards rose to 10.14 percent in December from 9.60 percent in November.

However, accounts at least 30 days delinquent -- an indicator of future loan losses -- fell to 5.78 percent from 5.87 percent.

Capital One routinely kicks off the monthly reporting of credit card charge-offs. American Express Co reports later in the day.

Capital One is the third-largest U.S. issuer of Visa-branded credit card and the fifth-largest issuer of 
MasterCard-branded credit cards.

For U.S. auto loans, Capital One's charge-off rate rose to 5.68 percent from 3.67 percent in November, and the delinquency rate rose to 10.03 percent from 9.57 percent.

In credit card international operations, including Canada and Britain, the charge-off rate rose to 9.58 percent from 9.50 percent, but the delinquency rate fell for a second straight month to 6.55 percent from 6.60 percent.


Here is the report on JPMorgan:


Jim Sinclair’s Commentary

The reason for these outrageous bonus levels is because this is the last dip at the well.

"JPMorgan Chase reported Q4 diluted EPS of $0.74, ex-items. Consensus was $0.61/share. Company reported revenues of $23.16B vs. consensus of $26.55B. (Bottom-line was tremendous; however, top-line had traders saying, “sold” and taking profits.)"



Is a USA debt default possible?  Here is a good article by Pat Buchanan on this issue:





Is a U.S. Default Inevitable?


Friday, January 15th, 2010

We were blindsided. We never saw it coming.

So said Goldman Sachs CEO Lloyd Blankfein of the financial crisis of 2008. He likened its probability to four hurricanes hitting the East Coast in a single season.

Blankfein was reminded by the chairman of the Financial Crisis Inquiry Committee, Phil Angelides, that hurricanes are "acts of God." Financial crises are manmade. Yet Blankfein was backed up by Jamie Dimon of JP Morgan, who said, "Somehow, we just missed … that home prices don’t go up forever."

The Wall Street titans thus conceded they did not foresee the housing bubble ever bursting and they did not consider the possibility of a collapse in value of the sub-prime mortgage securities piled up on their books.

Backing up Blankfein’s plea of ignorance and incomprehension is this: The crisis killed Lehman Brothers and would have killed every one of them had not the Treasury and Fed, neither of which saw it coming, either, intervened with hundreds of billions in bailout cash.

Yet there were those who warned a housing bubble was being created like the dot-com bubble; others who predicted the Empire of Debt was coming down. As, today, there are those warning that the United States, with consecutive deficits running 10 percent of gross domestic product, is risking an eventual default on its national debt.

The warnings come from the Committee on the Fiscal Future of the United States, chaired by Rudolph Penner, former head of the Congressional Budget Office, and David Walker, former head of the Government Accountability Office and author of Comeback America: Turning the Country Around and Restoring Fiscal Responsibility. With that share of the U.S. national debt held by individuals, corporations, pension funds and foreign governments having risen in 2009 from 41 percent to 53 percent of GDP, Penner and Walker believe it imperative to get the deficit under control. Unfortunately, it is not possible to see how, politically, this can be done.

Consider. The five largest elements in the budget are Social Security, Medicare, Medicaid, defense and interest on the debt.

With interest rates near record lows, and certain to rise, and back-to-back $1.4 trillion deficits, this budget item has to grow and has to be paid if the U.S. government is to continue to borrow.

Second, with seniors on fire against Medicare cuts in health care reform, it would be fatal for the Obama Democrats to curtail Social Security or Medicare benefits any further this year. Next year, they will not only lack the congressional strength but any desire to do so, after their anticipated shellacking this fall.

The same holds true for Medicaid. The Party of Government is not going to cut health benefits for its most loyal supporters. Indeed, federal costs may rise as state governments, constitutionally required to balance their budgets, cut social benefits and beg the feds to pick up the slack.

This leaves defense. But the president is deepening the U.S. involvement in Afghanistan to 100,000 troops, and the military needs to replace weaponry and machines depreciated in a decade of war.

Where, then, are the spending cuts to come from?

Can the administration cut Homeland Security, the FBI or CIA after the near disaster in Detroit? Will Obama cut the spending for education he promised to increase? Will he cut funding for Food Stamps, unemployment insurance or the Earned Income Tax Credit in a recession? For the near term, the entitlements are untouchables.

Is this Democratic Congress, which increased the budgets of all the departments by an average of 10 percent, going to take a knife to federal agencies or federal salaries, when federal bureaucrats and beneficiaries of federal programs are the most reliable voting blocs in their coalition?

What about tax hikes?

Obama has promised to let the Bush tax cuts lapse for those earning $250,000 but has pledged not to raise taxes on the middle class. Any broad-based tax would be politically suicidal for him and his increasingly unpopular party.

But if taxes are off the table, Afghan war costs are inexorably rising, and cuts in Social Security, Medicare, Medicaid and entitlement programs are politically impossible, as pressure builds for a second stimulus, how does one reduce a deficit of $1.4 trillion?

How does one stop the exploding national debt from surging above 100 percent of GDP?

America is the oldest and greatest constitutional republic, the model for all the others. But if our elected politicians are incapable of imposing the sacrifices needed to pull the nation back from the brink of a devaluation or default, is democratic capitalism truly, as Francis Fukuyama told us just two decades ago, the future of mankind?

What the looming fiscal crisis of this country portends is nothing less than a test of whether this democratic republic is sustainable.






Last night, we got 3 bank failures.  The first one was pretty large with assets of 850 billion and deposits of roughly the same. Here are the 3 banks:


Bank failures so far this weekend:

Bank Closing Information – January 15, 2010 
These links contain useful information for the customers and vendors of these closed banks. 
Barnes Banking Company, Kaysville, UT 
St. Stephen State Bank, Saint Stephen, MN 
Town Community Bank & Trust, Antioch, IL





The dollar rose yesterday due to fears of a debt default by Greece.  Here is an article by Axel Merk who says that Greece is only 3% of Euro GDP.

California is 12% of the usa GDP.  And all the states have similar problems to California.  Here is Axel Merk:



ECB—Greece No California 
Source: Axel Merk  01/14/2010

At its monthly press conference, European Central Bank (ECB) President Trichet was assertive in calling for fiscal discipline in its 16 member states that comprise 330 million people using the euro. Asked about bailing out Greece or other member states with severe fiscal challenges, Trichet called the ECB collateral framework crystal clear, applyingerga omnes (equally) to every member state; no special treatment will be provided to any one member. In the euro zone, member states may receive funding from the ECB by posting collateral, but only if their debt is appropriately rated by the major credit rating agencies.

Comparing the euro zone to the United States in size and diversity, Trichet said that there are always more competitive and less competitive regions. Being part of the euro provides benefits, such as easy funding of current account deficits, as well as a credible currency. Beyond that, it is the responsibility of member countries to do their job to conduct structural reform. It is in the interest of member countries to help themselves.

Asked about any threat to the euro because of Greece’s problems, Trichet pointed out that Greece’s Gross Domestic Product (GDP) is a mere 2.5%–3% of the euro zone GDP. In California, which has its own set of severe fiscal challenges, the magnitude of the problem is far larger (California’s GDP is over 12% of U.S. GDP). He went on to stress that euro zone budget deficits currently amount to about 6.5%–7% in the aggregate, compared to 12% in the U.S.

Asked about the strong euro, he reiterated the importance that the U.S. be committed to a strong dollar and a monetary policy inspiring confidence. Given the statistics highlighted by Trichet, it is fair to assume that he would like to see more fiscal and monetary restraint in the U.S. While it would not be appropriate for Trichet to directly comment on fiscal or monetary policy in the U.S., he was more assertive than ever in calling for fiscal discipline within the euro zone. He reminded member countries that achieving deficit targets is not merely a goal or request, but a requirement. He cautioned that tax cuts should be considered only in the medium term once an exit strategy for fiscal emergency spending programs is in place.

While giving very little guidance on interest rates and upcoming monetary policy, a noteworthy comment of his was that an increase in indirect taxation in countries’ efforts to achieve fiscal consolidation may pose a threat to economic growth.



The best article of the day was written by Greg Hunter on the Christmas credit card gift to Fannie and Freddie.

He details what is going to happen to mortgages in 2010-2011 and why they had to lift the debt limits to infinity!


Here is the article for you to read:


Fannie, Freddie and Gold 
15 January 2010  
By Greg Hunter  

On Christmas Eve of 2009, the Treasury decided to lift the caps on how much bailout money failed mortgage giants Fannie Mae and Freddie Mac would receive to stay in business.  The caps represented a maximum taxpayer exposure of $400 billion for both companies.  Now, taxpayers will be on the hook for an “unlimited” amount for, at least, the next three years.  How much is “unlimited?”  Well, for starters, Fannie and Freddie guarantee more than $5 trillion in mortgage backed securities.  Add that to the combined debt of nearly $3 trillion for both companies, and you get $8 trillion of taxpayer liability.  When I first heard that the caps would be lifted for just three years, I asked myself “Why three years?”  The chart below gave me the answer.  Take a look at the  2010 mark.  You see that wave of mortgage resets for all those different kinds of mortgages?  They peak and fall off about mid 2012.


You know the reset mess won’t be over at that precise point.  It will take about six months or so for all the defaults to shake out.  That’s just about three years, which is the exact same amount of time the caps on Freddie and Fannie will be lifted to bail them out of infinity.  I am confident Treasury Secretary Geithner has seen the same chart.  He knows those bars represent millions of mortgages.  Not everybody will default because their mortgage resets, but many will not be able to afford the higher payments and lose their home.  

Also, Fannie and Freddie are going to have to keep providing hundreds of billions of dollars in new mortgage financing because, if they don’t, the real estate  market will probably collapse.  With all the sour mortgages, securities, and new mortgage exposure, there is no telling how much this will cost the taxpayers.  I don’t think it is a stretch to say it will end up being many trillions of dollars.  Once again, there was a huge tax bill hung on the country, on Christmas Eve no less, and the mainstream media is nowhere to be found.  Where is CBS, NBC, ABC, and CNN?  What just happened to the budget deficit is bigger than the $700 billion TARP bailout, the $787 billion stimulus bill, and the $180 billion bailout of AIG, COMBINED.  As a matter of fact, lifting the caps on Fannie and Freddie will cost many times more than all those COMBINED!  I guess that is just not a story in mainstream media land. 

On Christmas Eve 2009, an $8 trillion addition to the federal debt was made by a single bureaucrat.  This move by the Treasury is a budget buster and will guarantee some very big inflation.  Gold will react to higher inflation with higher prices.  There was only one other time in the last 10 years that there was such a clear signal precious metals were in for a ride.  It was March 2006, and brand new Fed Chief, Ben Bernanke, decided to call an end to the M3 report. (a statistic that shows the broadest measure of all money in the system).  The Fed effectively said it was not going to tell the world exactly how much money it was creating.  You might as well have walked into the gold trading pits with a starting pistol because, after the M3 died, gold just about doubled in less than four years.  Just look at the chart below:   


Now, with the elimination of the caps on mortgage giants Fannie and Freddie, you will have gold off to the races again because the government will print money to pay off debt.  And if we have another financial meltdown, like 2008, gold will take a moon shot.  What makes me say that?  It is H.R. 4173, which is the Reform and Consumer Protection Act of 2009.  This legislation is supposed to protect the little guy, but it also protects the banks with a provision in the bill to rescue them from financial ruin in the future.  The Fed will have pre-authorization to give reckless banks as much as $4 trillion to, once again, bailout the incompetent.  The bill has a long way to go before it is signed into law.  Still, I’d say the odds are pretty good there will be another crisis; otherwise, Wall Street would not have paid their lobbyists to push a pre-authorized bailout.    

My advice to you is to brace yourself for the impact of inflation.  The actions of the Treasury and Wall Street have guaranteed it.







In conclusion, we will witness massive public spending driving up the Federal Debt.

Instead of March 15.10 being the supposed talks to raise its limit again, we will probably see the limit of 12.39 trillion hit in the first week of February.  With GDP. still hugging aound 13 trillion dollars, the usa is rapidly approaching a debt to GDP of 100%.


This week, we saw conditions in Japan rapidly deteriorate.  This nation which has the third largest economy on earth following the usa and china, has seen its total debt spiral as the ruling

parties desperately tried to climb out of deflation that hit them hard in 1989. This year their Debt to GLP level will rise to 227%.

It deficit to GDP will rise to 50%. The citizenry of Japan have taken note.  The holders of Japanese debt which are its citizens to the tune of 96% of the total, are 'voting" as they exit the yen

denominated bonds and buy gold.  They sense the writing on the wall.  Up until this year, they have supported the bonds even with meagre returns  as the government refused to hyperinflate.

Now the citizens realize that the government has no option.

Pay special attention to TOCOM figures.  Gold and silver OI over there are rising in huge fashion for the first time in quite a while.

I am not sure that JPMorgan can withstand a huge demand for physical metals on both eastern fronts:  China and Japan. I am sure that South Korea is watching attentively and they will follow their Asian brothers.


Have a great weekend


see you on Monday





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