Saturday, May 14, 2011

Another Raid/Gold Falls/Silver rises:

Good morning Ladies and Gentlemen:

Gold closed down $11.80 to $1495.00 with all of the drop occurring after London and the physical markets were put to bed.  The price of silver did not follow its cousin and rose on the day closing at comex time at $35.20.

In the access market, gold finished the week at $1495.20 with silver at $35.30.

Let us head over to the comex and see how trading fared over there.

First the gold comex:

The open interest on the gold comex rose 2602 contracts from 510,544 to 513,146. ( This is basis Thursday night)
If you will recall we had the bankers supply massive paper trying to cause the gold price to fall and they failed miserably as gold rose on Thursday.  Now we see the results of their actions:  a rise in open interest as again the bankers failed to dampen demand for our ancient metal of kings. The front options expiry month of May saw its OI fall from 42 to 37 for a drop of 5 contracts.  We had 7 delivery notices on Thursday so we lost zero oz to cash settlements and gained a few oz standing for delivery.

All eyes are now focusing on the big delivery month of June which will surely provide considerable fireworks throughout the month.  This next front month of June saw its OI fall marginally from 285,212 to 281,683 as the early roll-overs move over to August.  The estimated volume at the gold comex Friday was quite high at 187,240.
The confirmed volume on Thursday, was a monster of a trading day coming in with a reading of 227,020.

Now for silver:

The total silver comex OI fell 1908 contracts from 123,121 to 121,213 as silver held its ground on Thursday. We lost a few bankers who covered their shorts as few silver leaves fell from the silver tree. The front options expiry month of May saw its OI fall from 325 to 303 for a drop of 22 contracts.  We had 10 deliveries on Thursday so Blythe succeeded in giving some of our longs huge premiums to cash settle.  It seems that 12 contracts cash settled. The next front delivery month is July and it saw its OI fall marginally from 66,164 to 64,417.
The estimated volume at the silver comex on Friday was lighter than usual at 114,122.  The confirmed volume for Thursday was also a monster trading day coming in at 163,457 or  818 million oz of silver (100% of annual silver production).

Here is the chart for 5/13/2011 regarding deliveries and inventory changes at the comex. This will be the start for the May comex month for gold and silver.

Withdrawals from Dealers Inventory
 200 oz (Scotia)
Withdrawals fromCustomer Inventory
64,396 Scotia,Manfra)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
 100   (1)
No of oz to be served  (notices)
 3600 (36)
Total monthly oz gold served (contracts) so far this month
 37700  (377)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total acculumulative withdrawal of gold from the Customer inventory this month

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
10,000  (2)
No of oz to be served  (notices)
1,505,000  (301)
Total monthly oz silver served (contracts) so far this month
2,085,000  (417)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer Inventory this month.

Let us start with gold.

Again we see no gold being deposited to the dealer. However we did see a tiny withdrawal of exactly 200 oz from the dealer vault at Scotia.
In the withdrawal department, we saw an exact 64,300 oz of gold leave the customer vault of Scotia. A tiny 96 oz left the vault of Manfra.

The comex folk notified us that a total of 1 notice for delivery was filed for 100 oz of gold.  The total number of gold oz sent down so far this month total 377 for 37700 oz of gold.  To obtain what is left, I take the OI standing (37)
and subtract out Friday's delivery (1) which leaves me with 36 notices or 3600 oz left to be served upon.

Thus the total number of gold oz standing in this non delivery month of May is as follows:

37700 oz (served)  +  3600 oz (to be served)  =  41,300 oz or 1.28 tonnes.
On Thursday we had the following:  41,100 oz so we gained 200 oz and lost zero to cash settlements.

And now for silver:

Very strange that again we witnessed no silver enter the dealer vault in a silver delivery month. We also witnessed no silver being deposited to the customer as well.

We did see quite a bit of activity in the withdrawal department with respect to the customer. The dealer saw no withdrawals.

The customer had a total of 56,314 oz leave various vaults:

1. 22,859 oz from Brinks
2. 30,303 oz from Scotia
3. 3,152 oz from Delaware

total:  56,314 oz.

we also had an adjustment of a 1173 oz error in counting at the customer vault of Scotia.

The comex folk notified us that a "biggy" number of notices were filed to delivery.  Are you ready for this:  TWO
In a delivery month, our bankers could only find only 10,000 oz of available silver to deliver upon our longs.  Silver is quite scarce.

The total number of silver notices filed so far this month total 417 for a total of 2,085,000 oz. To obtain what is left to be served upon, I take the OI standing (303) and subtract out Friday's deliveries  (2) which leaves me with 301 notices or 1,505,000 oz left to be served upon.

Thus the total number of silver oz standing in the delivery month is as follows:
2,085,000 (served)  = 1,505,000 (to be served)  =  3,590,000 oz.
On Thursday we had a reading of 3,560,000 so we lost 70,000 oz to cash settlements.
The number of silver oz standing is the lowest in quite some time.


Let us head over to our ETF's

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.

First GLD inventory changes:  May 13.2011 : 

Total Gold in Trust

Tonnes: 1,192.25
Value US$:

GLD: May 12.2011:

Total Gold in Trust
Tonnes: 1,193.16
Value US$:

Total Gold in Trust May 11:
Tonnes: 1,201.95
Value US$:

we lost another .91 tonnes of gold. Some of you have correctly pointed out that physical gold is moving out of the GLD therefore it must have physical gold behind them. It seems that the Bank of England is directing events here.

London has seen a flurry of activity where some physical players refuse to forward any of their gold contracts at the LBMA and instead take the physical totally out of London vaults.  This causes the Bank of England to muster up supplies so it calls upon our illustrious hoodlums, JPMorgan, Goldman Sachs, to deliver gold to our buyers. They raid the GLD by taking shares and cashing them for gold and deliver upon the anxious investor.  The problem is thus two fold:

the shareholders of GLD are losing "their gold"
the bank of England is also losing their gold.

Immediately after GLD was formed, we could not balance demand vs supply of gold. However
Catherine Fitts determined that the GLD got their original gold through a swap arrangement with the Bank of England.  The Bank moved its gold over to the cubby hole of the GLD.  The GLD deposited money into the Bank's account. The Bank of England can reswap at any time they wish. If you remove the GLD inventory then all BIS data balances perfectly.  There is a further problem here in that the gold on deposit to the Bank of England is not really the Banks but depositors like the Arabs or other sovereign folk who desire to deposit gold for safekeeping.  The Bank of England is a foreign depository for gold just like the Federal Bank of New York with one distinction.  The gold at the Bank of New York is ear-marked gold and cannot be used by the Bank in lending activities etc. The gold at the Bank of England is not ear marked and they can use the gold for lending purposes just like you depositing cash into your bank.  The bank can loan out your money and that is what they are doing with the gold.  This is why a default here will be a much bigger bang and a default over at the comex.

Now let us see inventory movements in the SLV:

May 13.2001

Ounces of Silver in Trust338,689,167.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,534.41

  May 12.2011:

Ounces of Silver in Trust 338,103,912.000
Tonnes of Silver in Trust 10,516.21

May 11.2011

Ounces of Silver in Trust 338,884,291.200
Tonnes of Silver in Trust 10,540.48

SLV: May 10:
Ounces of Silver in Trust 340,347,517.200
Tonnes of Silver in Trust 10,585.99

We gained back 586,000 oz  of paper silver today. The story is a little different with silver as their is no official above ground silver supplies.  The SLV is believed to have received their initial supply from Buffet's 137million oz but this silver has long been leased out.  This is why I state we have one inventory for 3 entities:

2.foreign bourses like LBMA and Shanghai

Let us head over to our closed physical funds that we follow: the Central Fund of Canada and Sprott's gold and silver funds:

1. Central Fund of Canada: it is trading at a negative 2.7% in usa funds and negative 3.1% for Cdn funds.
2. Sprott silver fund  (PSLV):  Premium to NAV rose to 16.12%
3. Sprott gold fund (PHYS): premium to NAV remains at positive 1.32% to NAV

Central Fund of Canada also has a gold fund by itself and a silver fund by itself and both are in both territory.
Thus I am greatly concerned that the bankers have infiltrated the CEF.a vehicle in order to knock its price down.
I think that high frequency trading has entered the following vehicles and thus are greatly disturbing prices:

1. Agnico Eagle
2. Goldcorp
3. Central fund of Canada
4. silver wheaton

I have sent my concerns over to the commissioners of the CFTC as did Adrian Douglas on this matter.


Friday saw the release of the COT data

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, May 10, 2011

In the gold COT report, the large specs got blown out of the water as they pitched 18,465 long contracts.
Those large specs that have short, covered a smallish 2,148 contracts.
And now for our famous commercials:
Those commercials that have been long gold added a monstrous 16,484 contracts to their longs.
Those commercials that have been short like JPMorgan and partners covered only 2, 037 contracts.
However if the commercials bought long contracts that is the same as covering their shorts..instead of covering a short contract say in August they buy a December contract. In essence they have a spread.
The small specs that were long gold pitched a larger than usual 4,298 contracts of gold.
Those small specs that were short gold covered 2094 contracts.
Also remember that this data was the last 3 days of last week's raid 

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, May 10, 2011

and now for the silver COT:

Those large specs that were long silver covered a massive 8512 contracts as they were totally spooked by the raid.
Those large specs that were short, used the opportunity to cover a very large 8644 short positions.
And now for our famous commercials:
Those commercials that were long silver added 2523 contracts to their longs.
Those commercials like JPMorgan who are always short surprised us all by adding 1,399 contracts to their shorts.
The raid did not give them an opportunity to cover their massive shorts.
The small specs that were long silver pitched a larger than usual 3211 contracts as these guys suffered from the bankers raid.
The small specs that have been short silver used the opportunity of the raid to cover 1955 contracts.


It is also interesting that the Euro price of gold is hovering around the 1060 Euros/oz of gold.
The Euro has been falling due to problems in Greece, Ireland and Portugal.  Thus the price of gold is holding in Euro terms despite the Euros fall.  Thus the gold rise these past few months has been strictly a USA phenonemon.  The bankers are very nervous as the Europeans are very old school and watching this very closely.  A breakout over 1060 euros/oz will bring on a whole new slew of buyers.

Here is a chart on this for you to see:


Here are some of the stories making the news yesterday.
First inflation is hitting a 2 and 1/2 year high as the Fed is printing massive amounts of dollars into existence:  (courtesy of Reuters)

Inflation hits 2-1/2 year high, seen peaking
WASHINGTON (Reuters) - Inflation hit the highest level in 2-1/2 years as food and energy prices moved higher, but there was little sign of a broader pick-up in inflation that would trouble the Federal Reserve.
The Labor Department said on Friday its Consumer Price Index increased 0.4 percent in April from March after rising 0.5 percent in March.
The rise, which was in line with economists' expectations, took the year-on-year inflation reading to 3.2 percent, the highest since October 2008.
The core CPI, which strips out volatile food and energy costs, rose a mild 0.2 percent from March, and the 12-month increase, at 1.3 percent, was at its highest level since February 2010.
The Federal Reserve, however, would like to see that move closer to 2 percent over time.
"This is not enough to prompt an immediate response from the Federal Reserve but they're certainly watching this," said Dana Saporta, an economist at Credit Suisse in New York.
The stiff gains in food and energy costs in recent months has squeezed consumers, who are enjoying only tepid wage gains.
The department said that when adjusted for inflation, average weekly earnings fell 0.3 percent in April after declining 0.4 percent in March.
U.S. government debt prices and stock index futures edged higher on the data.
Fed officials believe high commodity prices, which undercut economic growth in the first quarter, will not have a lasting effect on inflation, but will likely be watching the steady increase in core prices closely.
Some economists believe a sharp retreat in commodity prices in recent days signals that inflation could soon peak.
"With crude oil prices falling 10 percent in the past week and cereal prices inretreat for more than a month now, energy and food should eventually start to have a deflationary impact," said Paul Ashworth, chief U.S. Economist at CapitalEconomics in Toronto.
Gasoline prices accounted for almost half of the rise in overall consumer inflation last month, advancing 3.3 percent.
The pace of increase, however, slowed from March's 5.6 percent rise and further declines are likely after U.S. gasoline futures registered their sharpest daily drop since September 2008 on Wednesday and slipped further on Thursday.
Last month, food prices rose 0.4 percent after increasing 0.8 percent in March.
Rising costs for housing, new vehicles, used trucks and medical costs bumped up core inflation last month. Shelter costs, which account for about 40 percent of core CPI, rose 0.1 percent, rising by the same margin for a seventh straight month.
Prices for new vehicles rose 0.7 percent last month, likely reflecting tight inventories as a shortage of parts in the wake of the devastating earthquake and tsunami in Japan disrupts production. They increased by a similar margin in March.
Apparel prices rebounded 0.2 percent from a 0.5 percent fall in March.


John Williams comments on the inflation front: (courtesy Jim Sinclair commentary and John Williams)

Jim Sinclair’s Commentary
Here is the latest from’s John Williams.
- April Year-to-Year Consumer Inflation: 3.2% (CPI-U), 3.6% (CPI-W), 10.7% (SGS)
- Fed’s Dollar Debasement Efforts Boost Three-Month CPI Inflation into 6% to 7% Range
- Official Double-Digit Consumer Inflation Possible in Third-Quarter
- With Rising Prices Dominating Sales Gains, “Core” Retail Sales Were Unchanged in April
"No. 368: April Inflation, Retail Sales, Trade Deficit"

This is another big story where the Fed balance sheet has now surpassed the 2.7 trillion dollar mark as they buy up all issued bonds.  The key will be what happens when June 30 approaches.
They must continue somehow with QEIII or else all markets implode.  Here is this important development:

U.S. Fed balance sheet approaches $2.729 trillion

NEW YORK, May 12 (Reuters) - The size of the U.S. Federal Reserve's balance sheet reached another record in the latest week, due to the central bank's plan to spur economic growth, Fed data released on Thursday showed.
The balance sheet -- a broad gauge of Fed lending to the financial system -- expanded to $2.729 trillion in the week ended May 11 from $2.703 trillion the previous week.
The central bank's holding of U.S. government securities grew to $1.466 trillion on Wednesday from last week's $1.442 trillion total.
The Treasuries purchases were part of the Fed's second phase of quantitative easing, dubbed QE2, a $600 billion purchase plan meant to stimulate investment and growth.
The central bank has signaled it will complete QE2 at the end of June, but will continue to reinvest proceeds from the bonds as they mature.
The Fed's ownership of mortgage bonds guaranteed by Fannie Mae , Freddie Mac and the Government National Mortgage Association (Ginnie Mae) totaled $927.02 billion, unchanged from the previous week.
The Fed's holdings of debt issued by Fannie, Freddie and the Federal Home Loan Bank system totaled $125.12 billion, also unchanged from a week earlier.
The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $4 million a day in the week ended Wednesday, compared with an average daily rate of $11 million last week.


The debt ceiling has been reached and this Monday we should see a breach of that limit.
Look at what is going on behind the scenes:

A growing number of House Republicans are expressing doubt about the need to raise the federal debt ceiling by Aug. 2, as the Treasury Department insists is necessary, sharply raising the political and economic stakes as congressional leaders try to secure a deal to raise the nation's borrowing limit.
WSJ Washington Bureau Chief Jerry Seib has the story of House Republicans calling into question the urgency expressed by Treasury Secretary Tim Geithner that the nation's debt ceiling needs to be raised. (Photo: ROSLAN RAHMAN/AFP/Getty Images)
Treasury Secretary Timothy Geithner has said if Congress doesn't raise the $14.294 trillion debt limit by Aug. 2, the federal government won't be able to pay all its bills, which would have a "catastrophic economic impact."
But many conservatives, including some GOP freshman who campaigned in 2010 against raising the debt limit, say he is exaggerating the danger.
They note that Mr. Geithner has already postponed the deadline once, and they insist the U.S. can find ways to shift its money around and cut some spending immediately to avoid cataclysmic consequences.
"When you say the drop-dead day is going to be August, I question that," said Rep. Tom Rooney (R., Fla.). "I'll believe it when I see it."

Debating Default

Rep. Austin Scott (R., Ga.), president of the GOP freshman class, said he doesn't see Aug. 2 as a key date because Mr. Geithner could make debt payments by raising money through the sale of government equities and other assets. "I think certainly he has the ability to sell stock in private companies and other things," Mr. Scott said.
Treasury officials said Thursday they stand firmly behind the Aug. 2 date deadline. That calculation was made by career staffers, not political appointees, they added.
So far, financial markets haven't been directly affected by the debate in Washington. Prices for Treasury debt have increased in recent days while yields, which move in the opposite direction, have fallen to their lowest levels since December.
The yield on the 10-year Treasury note fell to as low as 3.142% on May 9, though it rose to 3.228% on Thursday.
But a technical default could prompt investors to rethink their view on Treasurys as the global standard for safe investments. "That's when it becomes a game changer," said Justin Hoogendoorn, managing director at BMO Capital Markets' fixed income group.
Most Republican leaders accept Treasury's deadline and continue to push for a debt limit increase before Aug. 2, insisting it be tied to deep spending cuts. But the skeptical attitude of their rank-and-file worries the White House and GOP leaders, who fear the freshmen don't appreciate the potential consequences of the U.S. defaulting on its obligations, something that has never happened.
Republican leaders are holding a series of "listening sessions'' to sound out members on what it would take to win their support for a debt-limit increase. But they have found they still have work to do in convincing their members of the need to urgently address the issue.
Freshman Rep. Bill Huizenga (R., Mich.), who attended the first, standing-room-only listening session last week, said, "The case has not been made that this is an absolute necessity."
Such skepticism could undercut the pressure that has been expected to push the two parties into a deficit-cutting plan that paves the way for a debt-limit increase. Congress typically makes tough decisions only when lawmakers face a hard deadline.
The threat of a government shutdown, for example, helped drive lawmakers into an April 8 deal that cut $38 billion in 2011 spending.
Republicans' doubts have been fueled in part by lingering disappointment that the pact failed to deliver the deeper cuts conservatives wanted. "They felt they were sold a bill of goods," said a senior Republican who voted for the bill but sympathized with critics.
This could make it harder for Speaker John Boehner to win GOP votes for any deal he strikes with the White House. But it could also strengthen his hand at the bargaining table, if it appears that many Republicans are willing to push beyond the Aug. 2 deadline while most Democrats are not.
Asked about the debt limit at a private dinner with financial leaders Tuesday night, Mr. Boehner acknowledged that some conservatives are willing to risk pushing the Treasury to the brink of default so the government will have to reprioritize spending. But Mr. Boehner warned against that approach.
Both parties agree that broad spending cuts should accompany a debt-limit increase, but they haven't worked out what form those cuts should take.
That's the subject of negotiations between congressional leaders and Vice President Joe Biden, whom President Barack Obama has asked to develop a deficit-reduction plan by the end of June. Mr. Biden said after meeting with the group Thursday that they had tentatively agreed on parts of a deal, but he provided no details.
"I'm convinced we can get to a significant down-payment to the $4 trillion we all agree has to be cut in the escalation of the debt over the next 10 years," he said, one that "everyone will think is real—including the international community, including rating agencies, including Democrats and Republicans" and get a vote on raising the debt ceiling.
If the government does default, Treasury says, it could mean stopping or limiting such payments as Social Security and Medicare checks, interest on debt, unemployment benefits, tax refunds and money owed to government contractors.
Mr. Geithner has warned that a default could trigger another financial crisis by shaking confidence in Treasurys, the world's most-liquid financial instrument. That could drive up U.S interest rates, hurting businesses and consumers and causing another recession.
On Wednesday, 62 business groups sent a letter to lawmakers asking them to raise the ceiling to avert a financial crisis.
"With economic growth slowly picking up we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations," said the letter, signed by the Business Roundtable, the American Gas Association, the Telecommunications Industry Association and the National Association of Manufacturers, among others.
As of Wednesday, the U.S. government's debt counted toward the debt ceiling was $14.270 trillion, or $24 billion under the cap. Mr. Geithner said last month that the government will reach the ceiling on May 16, but could avoid actual default until July 8 by using "extraordinary measures," such as redeeming Treasury securities held by a federal retirement fund. Then last week, he said that because of better-than-expected tax receipts, Treasury could postpone default until Aug. 2.
Some Republicans saw this as an indication that the doomsday scenarios are exaggerated and that the government can easily move money to avoid a default. By shifting the deadline, said Rep. Tom Price (R., Ga.), Mr. Geithner undercut his own warnings. "People who were saying, 'These dates are fuzzy' got more ammunition," Mr. Price said.
The Republican Study Committee, a powerful group of House conservatives, wrote Mr. Geithner Thursday asking how he came up with the Aug. 2 deadline. Underlying some of these challenges is a suspicion that the deadline was created for political reasons, to apply pressure on Republicans to relent on spending cuts.
Treasury officials said they are alarmed by the arguments of some lawmakers that the government could avoid a default by selling off assets. "A 'fire sale' of financial assets would be damaging to the economy, taxpayers, and financial markets," Assistant Treasury Secretary Mary J. Miller said last week.
Rep. Peter Welch (D., Vt.) argued that efforts to cast doubt on the need to raise the debt increase were "wild and reckless."
"If we blunder toward a resolution of the debt limit, we could do grave danger," said Mr. Welch, who has been urging a vote to increase the debt ceiling without amendments. "We don't know when the markets will turn, but when they do it will be swift and with a vengeance."
Vidak Radonjic, who runs the Beryl Consulting Group based in Jersey City, N.J., which advises family offices on hedge-fund investing, said managers seem to agree that lawmakers would be "foolish" not to raise the debt ceiling. "If they don't extend, there will be big repercussions," Mr. Radonjic said. "The markets will be hit hard. We don't want to go back to crisis mode."
—Damian Paletta, Matt Phillips, Patrick O'Connor, Steve Eder and Carol E. Lee contributed to this article.
Write to Naftali Bendavid at


Ron Paul officially is now running for President of the USA. The Fed today are not happy campers:

story courtesy of the associated press and yahoo

Denouncing Fed, Ron Paul announces presidential candidacy
Submitted by cpowell on 07:53AM ET Friday, May 13, 2011. Section: Daily Dispatches
By Jay Root Associated Press via Yahoo News Friday, May 13, 2011
Texas Rep. Ron Paul announced Friday that he will run for the GOP nomination for president in 2012, the third attempt for the man known on Capitol Hill as "Dr. No" for his enthusiasm for bashing runaway spending and government overreach.
"Time has come around to the point where the people are agreeing with much of what I've been saying for 30 years. So, I think the time is right," said the 75-year-old Paul, who first ran for president as a Libertarian in 1988.
Paul made his announcement in an interview on ABC's "Good Morning, America" from New Hampshire, where he planned his first event for his presidential campaign on Friday.
Three years ago, the former flight surgeon and outspoken critic of the Federal Reserve became an Internet sensation -- and a prodigious fundraiser -- when he made a spirited but doomed bid for the 2008 Republican presidential nomination…;_ylt=AqBsTtfi17LUzJPseuUrEwWs...


In Japan, the nuclear disaster continues to plague the Japanese:

Japan's Latest Proposal To Contain Fukushima's Radioactive Fallout - A (Circus) Tent

Tyler Durden's picture

You just can't make this up: proving that Japan can outdo even the Russians when it comes to nuclear crisis "response", Dow Jones reports that the latest scheme to come out of TEPCO is to cover Fukushima with a giant tent. It is unclear if it will have a circus coloration yet. From DJ: "Giant polyester covers will soon be placed around the damaged reactor buildings at Japan's Fukushima nuclear complex to help contain the release of radioactive substances into the atmosphere, the plant operator said Friday. Tokyo Electric Power Co. (TEPCO) will install the first cover at the No. 1 reactor, the focus of recent stabilization efforts, starting next month." This probably means that Japan looked long and hard at the concrete shell option and realized it was impossible, which is true. The problem is that by now the melted cores are not in the complex, but deep beneath it and the radioactivity is actively seeping directly into the soil. And since the polyester tent idea is doomed to failure, it is only a matter of time before the Simpsons dome is firmly in place over a ragion with a radius of about 20 kilometers. Impossible you say? Just wait.
From DJ:
Workers will erect a steel framework and place a giant polyester tent-like cover around the reactor building. Similar covers will be placed around units No. 3 and 4. The work is expected to be completed by the end of the year.

A series of hydrogen explosions blew off the roofs and upper walls of the three reactors in the days after the March 11 earthquake and tsunami knocked out their cooling systems, triggering the overheating of the reactors.

The explosions scattered a large amount of radioactive debris in the area around the reactors. Workers will have to clear the debris near the No. 1 unit so that cranes and other heavy equipment can approach the reactor. TEPCO said it began shifting debris from the area around the unit Friday.

The damaged buildings have come to symbolize the severity of the nuclear crisis at the plant, the worst nuclear accident since Chernobyl in 1986.

The loss of the roofs and filters above the reactors has led to the steady release of radioactive substances from the complex, prompting calls for measures to contain contamination in the surrounding areas.
Artist's impression of this latest Japanese venture:
h/t Joshua

I will leave you with this zero hedge article where Goldman Sachs has fired a second arrow and states that QEIII must be initiated:

Goldman Fires The Second Shot Across The QE3 Bow: "Successful Fiscal Consolidation Needs Monetary Policy Help"

Tyler Durden's picture

Yesterday, when we presented the Bloomberg interviewof Princeton economist and former Fed vice chairman Alan Blinder, we speculated that his statement that "more easing is necessary" was the first shot across the QE3 bow. Today, Goldman's Sven Jari Stehn has fired the second one in a paper just released titled: "Fiscal Adjustment without Fed Easing: A Tall Order" in which he basically takes our conclusion from the Blinder interview to the next level. As Blinder said previously, in order to improve the once again deteriorating labor picture, more fiscal stimulus would be necessary. That, however, is impossible, especially in a Congress where everyone is now promising $4 trillion of deficit cuts over the next few years. The only difference is how this cutting will be achieved: republicans want spending cuts, while democrats are demanding tax hikes for the richest. While neither approach will work in the US without the shock of a bond-crash induced austerity, Goldman conducts an thought experiment in which it evaluates the effectiveness of a tax-based and a spending-based fiscal consolidation. While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.
Furthermore, Goldman also openly admits that in either fiscal case, the drag on economic growth will be substantial. "A number of studies have shown that adjustments focused primarily on spending cuts (“spending-based consolidations”) tend to be notably more successful at delivering such large consolidations than revenue-based ones. Building on work done by the IMF, we identify two reasons for this difference. First, spending-based consolidations are usually more persistent, as they are often combined with structural reforms. Second, spending cuts tend to be less damaging for growth than tax increases...A key factor behind this difference in success, however, is the response of monetary policy. While spending-based adjustments are typically accompanied by monetary easing, tax-based ones often see monetary tightening. Using a counterfactual experiment which “shuts down” the interest rate response, we show that the difference in growth damage between spending and tax-based adjustments narrows sharply..With the funds rate close to zero, our analysis implies that both spending and tax-based consolidations are likely to act as a significant drag on growth. Nonetheless, spending-based adjustments might still be the lesser of two evils, particularly if combined with entitlement reform and fiscal rules that come with a strong enforcement mechanism." Translation: the economy will slow materially regardless, but without monetary easing it will crash. Next up: cue an enjoinder by the New Jersey installment of the Ivy League, and the balance of Wall Street, all of whom realize that their bonuses are suddenly at steak.
We said yesterday that "we believe that with this the opening salvo for more cash demands, which will be met with staunch opposition in D.C., thereby kicking the ball back to the Fed (which already is doing everything in its power to deflate all commodities as rapidly as possible - a trend which will sooner or alter engulf risk assets as well) the only alternative is monetary. Aka more quantitative easing. And when that becomes apparent, and when Goldman's Jan Hatzius is firmly on board, the full court press for another round of easing can begin." Well, Goldman just got on board. Look for the cries for more monetary intervention courtesy of a Congress which can't make up its mind about a debt ceiling hike for 4 months to escalate over the next 2-3 months as the economic reality turns aggressively south. At that point the Chairman will be faced with a daily barrage of "experts" who are screaming "deflation... or printing." We have a guess which one Ben will chose.
From Sven Jari Stehn of Goldman Sachs
I. Fiscal Adjustment without Fed Easing: A Tall Order
The US needs a very large fiscal consolidation as we expect a primary (ex-interest) deficit of 7.7% of GDP this year. Stabilizing the debt stock eventually requires the primary budget to be close to balance. Although some of this deficit is cyclical, the structural deficit (defined here as the primary deficit adjusted for the cycle and one-off accounting changes) currently stands at 6% of GDP. Moreover, this is the  very minimum adjustment needed as stabilizing the debt stock at current levels—or even returning the debt ratio to pre-crisis ratios—would require a much larger fiscal consolidation.
Ingredients for a Successful Consolidation
A number of studies—going back to Alberto Alesina and Roberto Perotti in 1995—have identified factors that determine the “success” of a  fiscal consolidation,  which is typically defined as a sizable and lasting reduction of the deficit or debt ratio.
The key result of these studies is that spending-based consolidations tend to be much more successful than revenue-based ones. There are two suggested reasons for this result. First, these studies argue that spendingbased consolidations are usually more persistent because they are often accompanied by structural reforms. Also, spending-based adjustments tend to be politically more difficult and thus signal stronger commitment to continued fiscal consolidation than tax increases. Second, these studies find that spendingbased adjustments are less detrimental to growth—and indeed can boost growth. The better growth outcome eases the consolidation burden both directly (through higher tax revenues) and indirectly (because it makes it easier to sustain the adjustment).
Recent work by the IMF, however, suggests that these conclusions should be re-examined. First, the IMF has shown that all consolidations—whether spending or revenue-based—tend to act as a drag on growth when we look at intended consolidations (or consolidation efforts) directly instead of the resulting changes to the structural deficit. In particular, the IMF argues that existing studies “stack the deck” against finding significant adverse growth effects. By using the cyclically-adjusted budget deficit to identify fiscal consolidations, the earlier studies include episodes that were not genuine periods of adjustment but rather one-off accounting changes. Moreover, even when such one-offs are removed, the change in the structural budget deficit is often a poor proxy for deliberate changes in fiscal policy because it fails to detect attempted fiscal adjustments that result in sharp downturns and are therefore reversed quickly. Second, the IMF study suggests that monetary policy plays an important role in shaping the consequences of fiscal adjustment. Specifically, spending-based adjustments have a less detrimental growth effect than tax-based adjustments because they are, on average, accompanied by monetary easing while tax-based adjustments usually see monetary tightening. This suggests that the success of a consolidation in reducing the deficit or debt ratio might depend importantly on the monetary policy response.
Finally, the new IMF dataset allows us to explore to what extent intended adjustments actually result in expost improvements in the fiscal situation. That is, the dataset enables us to take into account that a consolidation attempt might have been so badly designed or implemented that
Spending Adjustments Are More Successful...
In an initial look at the IMF data, we organize the dataset into consolidation episodes. Specifically, we define a consolidation period as one in which policymakers intend to consolidate by at least 1% of GDP in the first and last periods. This definition produces 29 episodes of consolidation.
We then split these episodes into the five consolidations that produced the largest and smallest improvements in the primary balance.  Exhibit 1 shows how effort and success vary across those two groups. Exhibit 2 lists details of these episodes. The two exhibits offer a number of interesting insights.
First, the required US adjustment is comparable only to the largest three consolidations in the dataset. Only Denmark starting in 1984, Sweden in 1993 and Ireland in 1982 have achieved consolidations in excess of 9% of GDP. Moreover, the most successful efforts were much more persistent than the unsuccessful ones (6 years on average versus 1 year).
Second, there is notable slippage between the adjustment effort and the actual improvement in the primary balance. During the least  successful  consolidations, the average adjustment effort (an average 1.5% of GDP) resulted in no improvement in the primary balance (Exhibit 1). But even for successful consolidations, the average adjustment effort (13.1% of GDP) was quite a bit larger than the reduction in the primary deficit (8.9% of GDP). One source of slippage is that the consolidation effort is only partially passed through into  improvements in the structural deficit—most likely because some consolidation efforts were aborted before the fiscal outlook actually improved (e.g. Japan in 1997).
Another reason for slippage is the effect of the consolidation effort on growth, as discussed below.
Second, the exhibits confirm earlier  studies that successful consolidations rely much more on spending reductions (around 72% of the adjustment) than unsuccessful ones (37%).
Finally, we see that the most successful consolidations, on average, saw no decline in growth while the least successful ones experienced a sharp 2.7 percentage point (pt) drop. At the same time, however, the top adjustments were accompanied by notably more monetary easing than the failures. During successful consolidations policy rates fell, on average, by 5.5pts while they only declined by 1.1pts during the least successful consolidations.
… Mostly Due to Monetary Policy
Given this very different response of monetary policy, we now explore the extent to which this drives the differences in success. To do so,  we estimate a statistical model for the 15 countries between 1980 and 2009 that explains the joint dynamics of the IMF’s measure of intended consolidations, real GDP, the primary balance and the monetary policy rate. Once estimated, we use the model to trace out the effects of an intended consolidation on growth, the primary balance and the policy rate. To distinguish between the effects of spending and tax-based consolidations we estimate two additional models and plot the results alongside the average consolidation.
Exhibit 3 shows how the primary balance, on average, responds to an intended fiscal consolidation. Consistent with the evidence above,  our estimates imply that a 1% of GDP consolidation effort typically improves the primary budget by only half that amount. Moreover, Exhibit 3 confirms that spending-based adjustments tend to be notably more successful in raising the budget surplus than tax-based ones. The reason is twofold. First, spending-based consolidation efforts tend to be sustained for longer than tax-based ones. Specifically, a 1% of GDP spending adjustment effort is usually followed by an additional spending cut effort of 0.4% in the year after, while a comparable revenue adjustment is only followed up with another 0.1% of GDP tax raise. As a result, spending-based adjustments raise the structural balance by almost twice as much after five years than tax-based adjustments (not shown).
Second, spending-based adjustments are less damaging for growth (Exhibit 4). Consistent with the IMF study we find that a 1% of GDP consolidation effort, on average, reduces real GDP by around ½% after two years. The composition of the adjustment, however, matters crucially: the GDP hit is much larger for tax-based consolidations (around 1½%) than spending-based ones (¼%).
A notable difference between spending and tax-based adjustments, however, is the response of monetary policy (Exhibit 5). The former are accompanied by monetary easing, while tax-based adjustments typically see monetary tightening in the first year (followed by some easing in the second year). The IMF shows that the initial monetary tightening is driven by interest rate hikes in response to indirect tax increases. A likely explanation is that central banks are worried about second-round inflation effects from increases in indirect taxes.
Consolidating Without Monetary Policy
Taken at face value, these results suggest that spending cuts are an overwhelmingly more attractive option than tax increases: they tend  to be more  persistent and less damaging to growth (although they don’t raise growth as suggested by some previous studies). Applying this conclusion to the required US adjustment, however, would be na├»ve because the  above results likely overstate the success that can be expected from spending-based adjustments relative to tax-based ones in the current environment. With the funds rate close to the  zero lower bound, a spendingbased adjustment could not be accompanied by monetary easing unless the Fed decided to adopt another asset purchase program (which we think is  highly unlikely). Moreover, the Fed would most likely see through any indirect tax  increases—were they to occur—and probably not raise interest rates in response to a revenue-based consolidation.
In a counterfactual analysis we therefore attempt to “shut down” the interest rate response to get a better sense of the implications of the choices the US currently faces. Such an experiment is fraught with difficulty as it requires an estimate of how changes in the policy rate affect output and the budget deficit. To obtain such an estimate we proceed in two steps. First, we use quarterly data to estimate the  effect of shocks to monetary policy on growth and the primary pioneered by David and Christina Romer. Second, we transform these estimates into annual data and apply them to the cross-country results above to construct the “no monetary policy” scenario. Given these steps, the uncertainty surrounding the resulting simulation is substantial. Moreover, allowing no monetary policy response is an extreme assumption as Fed officials could adopt additional unconventional policy steps to support a spending-based adjustment if they chose to do so.
With this in mind, Exhibits 6 and 7 suggest that the difference in success between spending and tax-based adjustments is less pronounced when there is no monetary policy response. In particular, the hit to GDP is now more similar during the first two years, at 1-1½% for tax and spending-based adjustments. After the second year, however, spending-based adjustments are still quite a bit less damaging to growth. As a result, the achieved improvement in the primary balance is now also more similar across spending and tax-based adjustments during the first two years. A 1% of GDP consolidation effort now improves the primary deficit ratio by half that amount after two years regardless of the composition. Spending adjustments, however, remain more effective at reducing the deficit persistently.
Spending Cuts are No Panacea, but Necessary
Our analysis implies that even spending-based adjustments are likely to be challenging in the current environment. This is because without  a monetary response, both spending and tax-based consolidations are likely to act as a sizable drag on growth.
That said, our analysis suggests that spending-based adjustments are nonetheless likely to be the lesser of two evils. First, the difference in growth damage between spending and tax-based consolidations narrows sharply without monetary policy but remains noticeable three or more years after the start of the adjustment. Second, spending adjustments tend to lead to more persistent deficit reductions than tax increases. This is probably because such consolidations often involve entitlement reform and not just one-off reductions in discretionary  outlays.  More broadly, this highlights the desirability of multiyear fiscal rules that come with a strong enforcement mechanism.
Meanwhile, barring another round of asset purchases, the best the Fed can do is keep monetary policy on hold to cushion the growth drag from the fiscal  consolidation—independently of whether it comes through adjustments in spending, revenue or both. As a result, the looming fiscal adjustment should reasonably be expected to see policy rates—and probably longer-term rates too—at lower than normal levels for an extended period.
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