Saturday, January 5, 2013

Jobs report/155,000 added/Spain's pension funds run out of room to purchase Spanish bonds/ Huge sales in gold from USA Mint in January/

Good morning Ladies and Gentlemen:

Gold closed down $25.90 to finish the comex session at $1648.30.  Silver followed gold down by 78 cents to $29.89.

However in the access market both precious metals recovered:

Silver: $30.18

The trading in gold and silver are manipulated most of the time.  The crooks will allow gold and silver to rise on a slow upward projection as the bankers manage their huge shortfall in both gold and silver derivatives. It would be wasteful to spend hours analyzing trading patterns when you have this massive manipulation on your shoulders and the regulators do nothing to correct.

In European news, we learned that Spain's pension funds have loaded up on Spanish bonds and this vehicle has run out of room to purchase more Spanish bonds.  Spain will need to raise at least 270 billion euros on the bond market this year with few takers.  The Spanish banks are already broke and cannot take on any more Spanish debt.  Expect Spain to finally go to the begging trough.

The real big news of the day of course is the jobs report which added 155,000 souls to payrolls.
Dave from Denver does a great job dissecting the data and he says that most of the gains are in the service and health sector which receive their revenues directly from government. This will be unsustainable in two months as the Republicans demand cuts in the Medicare/Medicaid spending.We have many commentary on the Fed FOMC minutes which indicated that they might wish to exit from bond purchases by the end of the year or earlier.  We are telling you, that it will be impossible for the Fed to exit.  The bond market will crash/the stock market will crash and that will force them back in a heartbeat.  We will go over these and many over stories but first......................................................................................................................

Let us now head over to the comex and assess trading on Friday.

The total comex gold open interest rose by 1868 contracts from 432,180 up to 434,048.   The non active January contract saw it's OI rise by 101 contracts from 166 up to 167.  We had 5 delivery notices filed on Thursday so in essence we gained 96  contracts or 9600 oz of gold standing for January delivery.
The next big active month for gold is February and here the OI fell by 1479 contracts from 254,244 down to 252,765.  The estimated volume at the gold comex on Friday was huge at 247,988 contracts.  The confirmed volume on Thursday came in at 174,532 which is pretty good. On big raid days, generally volume rises appreciably.

The total silver comex OI continues to play to a different drummer than gold.  Here the total silver OI complex rose by a very large 1013 contracts from 141,548 up to 142,561. It seems that longs were waiting in the bushes expecting an attack and they responded by purchasing contracts on the cheap. The longs in silver seem quite impervious to the price.  The non active January contract month saw it's OI rise by 9 contracts from 42 up to 51.  We had 1 delivery notice filed on Thursday so we gained 8 contracts or 40,000 oz of silver standing for delivery in January. The next big active delivery month is March and here the OI rose by 298 contracts from 80,604 up to 80,920.  The estimated volume on Friday was extremely strong at 63,799.  The confirmed volume on Thursday was also good at 51,369.

Comex gold figures 

Jan 4.2013    The  January contract month

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
80,375.000  (JPM)  exactly 2.5 tonnes
Deposits to the Dealer Inventory in oz
100.65 (Brinks)
Deposits to the Customer Inventory, in oz
19,257.85 (HSBC, Brinks, Scotia) 
No of oz served (contracts) today
 20     (2000)
No of oz to be served (notices)
147  (14,700 oz)
Total monthly oz gold served (contracts) so far this month
760  (76,000 oz) 
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

84,683.10 oz
Today, we  had a very  big transaction day  inside the gold vaults 

The dealer had one deposits  and no   withdrawals.

i) into Brinks:  100.65 oz

We had 3 large  customer deposits:

i) Into Scotia:  8,487.6 oz
ii) Into HSBC:  6,462.15 oz
iii) into Brinks: 4,308.10 oz

total deposit:  19,257.85 oz

we had 1   customer withdrawal and it was a doozy!!!:

out of JPM:  80,375.0000 oz or exactly 2.50000 tonnes of gold.

total customer withdrawal  80,375.000 oz

Amazingly JPM is getting into the paper gold withdrawal business.

We had 1 adjustment:

Out of the Scotia vault:  400.52 oz gets transferred out the customer account and lands in the customer dealer account 

Thus the dealer inventory rests tonight at 2.288 million oz (71.16) tonnes of gold.

The CME reported that we had 20 notices filed or 2000 oz of gold. To obtain what is left to be served upon, I take the OI for January  (167) and subtract out today's delivery notices (20) which leaves us with 147 notices or 14,700 oz of gold left to be served upon our longs.

Thus the total number of gold ounces standing in this non active month of January is as follows:

76,000 oz (served)  +  14700 oz (to be served upon) =   90,700 oz or 2.82 tonnes.
we gained 9600 oz of gold standing for the January delivery month.

Generally, January is a very weak delivery period for both gold and silver and thus the 2.5 tonnes of gold is quite a surprise.
Also at the beginning of this month I promised you that we will see advancing amounts of metal standing and it sure looks like that is where we are heading.
You will see the same in silver with increasing amounts standing in that arena.


January 4.2013:   The January silver contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory  600,440.37  (Brinks, HSBC)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory   2,163,705.81 (Brinks,HSBC,Scotia)
No of oz served (contracts)7  (35,000 oz)
No of oz to be served (notices)44  (220,000 oz)
Total monthly oz silver served (contracts)308  (1,540,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this monthnil
Total accumulative withdrawal of silver from the Customer inventory this month1,347,201.02

Today, we  had huge activity  inside the silver vaults.

 we had no dealer deposits and no   dealer withdrawals:

We had 3 customer deposits of silver:

1) Into Brinks:  532,198.54 oz
ii) Into HSBC : 619,972.90 oz
iii) into Scotia; 1,011.534.37 oz

total customer deposit:  2,163,705.81

we had 3 customer withdrawals:

i) out of HSBC : 300,124.15 oz
ii) out of brinks:  300,316.72 oz  
total customer withdrawal:  600,440.37  oz

we had 0  adjustments:( just a negligible 5 oz counting error).

I have still not received any answer from the CFTC  regarding the round numbered deposits/withdrawals in gold and silver we have been witnessing lately, especially from the CNT vault.  

Registered silver remains today at :  40.436 million oz
total of all silver:  150.368  million oz.

The CME reported that we had only 7  notices filed for 35,000 oz of silver.  To obtain what is left to be served upon, I take the OI standing for January (51) and subtract out Friday's delivery notices (7) which leaves us with 44 or 220,000 oz left to be served upon our longs.

Thus the total number of silver oz standing for the month of January is as follows:

1,540,000 oz (served)  +  220,000 (oz to be served upon)  =  1,760,000 oz
we  gained 40,000 oz of silver  standing for January.


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.
There is now evidence that the GLD and SLV are paper settling on the comex.

Total Gold in Trust   Jan 4.2013  



Value US$71.078  billion

Jan 3.2013:



Value US$72.340  billion

Total Gold in Trust   Jan 2.2013  



Value US$73.480 billion

Dec 31.2012:



Value US$72.239 billion

Dec 28.2012:



Value US$71.959  Billion

we  gained 1.18 tonnes of gold ounces back into  the GLD vaults.
I would not want to be around the regulators when they find out that this vehicle is nothing but a fraud. 

and now for silver:

Jan 4.2013:

Ounces of Silver in Trust323,470,757.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,061.07

Jan 3.2013:

Ounces of Silver in Trust324,239,127.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,084.96

Jan 2.2012

Ounces of Silver in Trust324,239,127.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,084.96

 Dec 31.2012:

Ounces of Silver in Trust322,981,444.700
Tonnes of Silver in Trust Tonnes of Silver in Trust10,045.85

dec 28.2012:

Ounces of Silver in Trust322,981,444.700
Tonnes of Silver in Trust Tonnes of Silver in Trust10,045.85

Dec 27.2012:

Ounces of Silver in Trust322,981,444.700
Tonnes of Silver in Trust Tonnes of Silver in Trust10,045.85

we  lost  769,000 oz of silver at the SLV

And now for our premiums to NAV for the funds I follow:

Sprott and Central Fund of Canada. 

(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded to a positive 5.7 percent to NAV in usa funds and a positive 5.6%  to NAV for Cdn funds. ( Jan 4 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 1.94% NAV  Jan 4./2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 2.39% positive to NAV Jan 4 2013.. 

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 5.7% in usa and 5.6% in Canadian.This fund is back in premiums to it's former self with respect to premiums per NAV. 

The silver Sprott fund announced a big silver purchase and this reduces the premium to NAV temporarily.  It seems that the bankers are picking on Sprott to short their funds trying to cause an avalanche in selling in the precious metals.  They are foolhardy in their attempt.

It looks like England may have trouble in finding gold and silver for its clients.
It is worth watching the premium for gold at the Sprott funds which is a good indicator of shortage as investors bid up the premiums.



At 3:30 pm the CME released it's COT report ending Monday the 31st of January.

First the gold COT:

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
Monday, December 31, 2012

Our large speculators;

Those large speculators that are long in gold decided to pitch 1776 contracts from their long side.
Those large speculators that have been short in gold covered a very tiny 199 contracts.

Our commercials:

Those commercials that are long in gold and are close to the physical scene added 3731 contracts to their long side.

Those commercials who are perennially short in gold added another 4726 contracts to their short side setting the scene up for the raid we experienced on Thursday and Friday this week.

Our small specs:

The small specs that have been long in gold added 2267 contracts to their long side
Those smalls specs that have been short in gold covered a tiny 305 contracts.


from a commercial vantage point, more bearish as the commercials went net short by 995 contracts. 


Silver COT Report: Futures
Large Speculators
Small Speculators
Open Interest
non reportable positions
Positions as of:

Monday, December 31, 2012

Big difference between gold and silver:
Our large speculators:
Those large specs that have been long in silver covered 1329 contracts from their long side.
Those large specs that have been short in silver added a very tiny 127 contracts to their short side.

Our commercials:
Those commercials who have been long in silver and are close to the physical scene added 1113 contracts to their long side.
Those commercials who have been short in silver from the beginning of time and led by JPMorgan only covered a very very tiny 259 contracts.
Our small specs:
Those small specs that have been long in silver added a very tiny 157 contracts to their long side
Those small specs that have been short in silver added a very tiny 73 contracts to their short side.

Our bankers are very timid with respect to silver. They certainly did not have a chance to cover much of their shortfall.  The commercials  went net long by 854 contracts and thus bullish for silver.


Here are your major physical stories:

The farce begins as gold falls 3.3% at 2 pm Thursday and then falters throughout the night.
The reason: the fed suggests that QE may end this year. 

The brainless media just do not get it.  With the USA entertaining a $1.5 trillion deficit, how on earth will the government finance this deficit if:

a) no country is willing to buy USA debt and
b) the Fed stops it's purchases? 

(your early morning comment on gold courtesy of Ben Traynor)

Gold Falls 3.3% in a Day as FOMC Minutes Suggest QE Could End This Year

By: Ben Traynor, BullionVault

-- Posted Friday, 4 January 2013 | Share this article | Source:

London Gold Market Report

WHOLESALE Gold Prices fell below $1630 per ounce Friday morning in London, their lowest level since last August and 3.3% below where they were 24 hours earlier, while stocks and commodities also fell and the Dollar gained after Federal Reserve minutes appeared to suggest some policymakers see a case for ending quantitative easing this year.

At its policy meeting last month, the Federal Open Market Committee voted to buy $45 billion of US Treasury bonds per month to support the economy, adding to the $40 billion a month of agency mortgage backed security purchases announced in September.

The minutes from that meeting published Thursday however show that some FOMC members "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013".

"The news that some policymakers suggested that the Fed could withdraw QE before the end of year, that put a dent on one of the underpinnings on gold, which is expansionary monetary policy," says Mark Luschini, chief investment strategist at US broker-dealer Janney Montgomery Scott, which managed $15 billion in assets.

"The Fed stimulus program has been a key driver behind gold," agrees Ed Meir, metals analyst at brokerage INTL FCStone.

"Removing such an instrumental prop could impact the precious metal dramatically, especially if it was done in rather heavy doses. However, the market that will reel most is the US Treasury market, although commodity in general should feel a blow-back as well through a stronger dollar and/or weaker equity prices."

Like gold, silver also fell after the FOMC minutes were published, hitting a low of $29.26 an ounce this morning – a daily drop of 5.8% and also its lowest level since August.

Heading into the weekend, gold looked set for a 1.9% weekly drop by Friday lunchtime in London, while silver was down 2.7% on the week.

Broad commodity prices also fell Friday, with oil down more than $1 a barrel on the day, while the US Dollar Index, which measures the strength of the Dollar against other major currencies, touched a six-week high.

Elsewhere in the Fed minutes, the Summary of Economic Projections shows most FOMC members do not expect the Fed will need to raise interest rates until 2015 at the earliest, at which time they forecast the unemployment rate will have fallen to the 6.5% target announced last month.

Later today, the latest US nonfarm payrolls report is due out at 08.30 EST, with the market expecting it to say 150,000 jobs were added to the US economy last month, according to the consensus forecast among analysts. The unemployment rate is expected to hold steady at 7.7%.

Over in Europe, stock markets extended yesterday's losses this morning, giving up more of the gains that followed Tuesday's US fiscal cliff deal.

Service sector growth in France and Germany slowed last month, according to purchasing managers index data published Friday, while UK services activity shrank.

HSBC meantime has cut is gold price forecast for 2013. HSBC analysts now say they expect gold to average $1760 an ounce this year, down from the previous forecast of $1850, although they expect to see prices gain from current levels.

"We believe that gold prices will recover this year and retain a pronounced bullish posture," a note from the bank says.

"[Fed interest rates]are likely to remain at current low levels until sometime in 2015 [and] other major central banks have also adopted conventional or unconventional easing of monetary policy."

HSBC's silver price forecast was left unchanged at $32 an ounce average price this year.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012


The real demand for gold:

(courtesy the MINT/zero hedge)

The Other "Mint" Campaign Starts Off With A Bang: US Mint Sells 50,000 Ounces Of Gold On First Day Of Year

Tyler Durden's picture

And we're off to the races. Despite, or maybe thanks to, the relentless collapse in paper gold prices, US retail continues to ignore the day to day fluctuations in the stated value of the shiny metal (most of it driven by the BIS' Benoit Gilson), and instead has learned to take advantage of every drop to BTFD. As the US mint website reports, the very first day of 2013 saw a whopping 50,000 gold ounce sales, and another 7,000 on the second, which is nearly the entire amount sold by the mint in December, and just shy of half in all of January 2012. Which in turn means that gold raids are now becoming counterproductive: instead of disincentivizing retail purchases, they are merely accelerating them, in the process leading to ever more paper to physical currency conversion. The "trillion dollar platinum coin" may well be the dumbest idea around, but the "one ounce gold coin" idea is rapidly becoming the most popular one, shared by all who see that the only possible outcome for the "developed world" is more ceaseless devaluation of every paper currency in the world.

(h/t Alex Gloy)

Please pay attention to the following:  there is no exit plan, there never was an exit plan and basically there is no exit period...

(courtesy Eric Sprott/Kingworld news)

Fed has no exit plan and no exit, Sprott tells King World News

1p ET Friday, January 4, 2013
Dear Friend of GATA and Gold:
Sprott Asset Management CEO Eric Sprott today tells King World News that it's silly to pretend that the Federal Reserve will stop buying bonds, as interest rates would explode. "There never was an exit plan, and there is no exit," Sprott says, suggesting that the main U.S. government policy now seems to be controlling the prices of gold and silver, the indicators of government's loss of control. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


The legendary Jim Sinclair's pep talk to those who do not understand the bankers raids on gold and silver:

(courtesy Jim Sinclair/GATA)

Jim Sinclair: Campaign to discredit gold indicates worst desperation yet

1:25p ET Friday, January 4, 2013
Dear Friend of GATA and Gold:
Jim Sinclair writes to a Comrade in Golden Arms today:
"Have you ever considered how bad it must be out there if the Fed and gold banks are working so hard to paint gold bearish and the U.S. dollar bullish? It must be fundamentally the worst of the various economic crises in my more than 50 years in gold.
"There has never been this level of effort on all fronts to discredit gold. That must reflect the dire condition of the balance sheets of the Western world's financial industry. Anyone with eyes in their head can see this move has been contrived. In my opinion profit on the short side is a secondary motive."
Sinclair's commentary is headlined "Jim's Mailbox" and it's posted at JSMineSet here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Your early morning overnight sentiment from Europe/Asia:

Major points:

1, the huge drop in the Euro
2. the bigger drop in the value of the pound
3. European service sector PMI slightly higher but Germany and France PMI lower
4.  UK service PMI down.

US Dollar Driven Higher

Marc To Market's picture

US dollar gains have been extended for the third session.  The euro has been sold down to almost $1.30 after testing $1.33 on Wed.  More stale longs may be forced out on a break of $1.2985, which corresponds to a 50% retracement of the advance from the mid-Nov low near $1.2660 and the 50-day moving average.
Sterling's decline is even more dramatic.  It has come off hard since setting a 17-month high on Wed near $1.6380.  It has now been pushed below $1.6040, which the 61.8% retracement of its rally from mid-Nov low near $1.5830.  Sterling has also slipped below the 50 and 100-day moving averages for the first time in seven weeks.
The main data in Europe was the service sector PMI.  The headline confirmed the five month high of  the 47.8 flash reading.  However, both the German and French reading came in below their flash reports.  Germany at 52.0 rather than 52.1 and France at 45.2 rather than 46.0.  The counter-balancing upside surprises came from Italy (45.6 up from 44.6 in Nov and 45.0 expected) and Spain (44.3 from 42.4 and forecasts of 42.8).  Yet even this should be kept in perspective.   Spain and Italy headline service PMI have not been above the 50 boom/bust level for more than a year.
The UK's CIPS service PMI was as large a disappointment as the manufacturing PMI earlier in the week was a pleasant surprise.  The 48.9 reading contrasts with forecasts for 50.5 and the 50.2 reading in Nov.  It is the fourth consecutive month in which the headline has been lower.  New business is at a two year low.  The risk is that after the expansion in Q3, the UK economy contracted anew in Q4.   At the same time, preliminary reports suggest the funding for lending scheme is easing the supply of credit and fear that the UK suffers from weak productivity more than the lack of aggregate demand (which could make further easing more inflationary than stimulative, a la the BOE's Weale) means that there is unlikely to be a policy response to the new evidence of economic weakness.
Meanwhile, the greenback has pushed to new highs against the yen, moving above the JPY88 level in late Asia and holding above it in the European morning.   The Nikkei re-opened for the first time in the new year to post a strong 2.8% gain.  Japanese government bonds slumped with the 10-year yield rising almost 4 bp to 0.825%, the highest level in more than three months.
The 30-year bond yield rose to almost 2%, its highest level in more than a year.  Yet, given the magnitude of the yen's decline and prospect for more to come, and the policy thrust of the new government, it is surprising yields have not risen more.   Japan will auction a total of JPY3 trillion of 10- and 30-year bonds next week and some of the weakness today may be related to deal position adjusting
Many market participants seemed to emphasize the wrong part of the FOMC minutes.  The key take away is not that there is some disagreement among the members about the duration of QE.   Instead, the key point is that the Fed is committed to expanding its balance sheet by buying more than $1 trillion of MBS and Treasuries in 2013 ($85 bln a month).  We note that from the Fed's perspective, the stock of its holdings of long-term assets is the key to its effective not the flow of purchases.
Moreover, its macro-economic guidance indicates that in will not raise interest rates until after unemployment falls below 6.5%, provided core PCE stays below 2.5%.   Plugging these macro-economic conditions into a Taylor-like model underscores the dovishness of the Federal Reserve.  On top of that, the composition of the FOMC, with new regional presidents rotating, tilts a bit more in the dovish direction.
The economic highlight of the day is the US jobs report.  In addition to the usual acknowledgements that this is among the most difficult high frequency data points to forecast, we share the following observations:  1) Many revised up their estimates following the stronger than expected ADP report.  This means the 150k consensus is probably on the low side of expectations 2) Initial jobless claims during the survey period were a little higher and small business survey was cautious.  ISM for manufacturing rose back above 50.   3) ADP is not a good predictor on a monthly basis, though it tracks trends fairly well. 4) This is especially true for the month of December, where ADP has over-stated the first BLS estimate by an average of almost 150k in the past two years.  5) Uncertainty surrounding the fiscal cliff did not seem to weigh on hiring decisions.  Private sector job growth in in the Sept-Nov period was essentially no different than the prior three month period.  6) Net private sector job growth averaged about 151.5k in the first eleven months of 2012.  This compares with 153k monthly average in 2011.


Amazingly, Switzerland is printing Swiss Francs and then buying British bonds (gilts) with the money.
In essence, Switzerland is funding the deficits of many countries driving their currencies higher.
Thus the race to the bottom is becoming quite a race!!

(courtesy Ambrose Evans Pritchard)

Ambrose Evans-Pritchard: Switzerland and Britain are now in a currency war

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, January 3, 2012
It seems you can't debase your coinage these days even if you try.
The Bank of England is straining every sinew to drive down sterling with quantitative easing, and what happens?
The Swiss National Bank trumps Threadneedle Street with an outright blitz of Gilt purchases. They just print it, and buy.
The Swiss and UK central banks are effectively fighting a low-intensity currency war against each other. It has come to this.

One awaits with curiosity to see what will happen when Japan -- 15 times the size -- kicks in with its own nuclear plans to drive down the yen, and Asia follows suit.
The latest IMF data of central bank holdings shows the biggest jump in sterling bonds held by advanced central banks ever recorded. It jumped from $79 billion to $98 billion in the third quarter.
These holdings are usually stable so it is obvious that the SNB is responsible. The Swiss are already sated on eurobonds as they frantically intervene to hold the franc at E1.20. By their own admission they have been diversifying energetically.
Analysts say the SNB has already bought $80 billion of EMU bonds, enough to cover half the budget deficits of Euroland over the last year. The SNB has been acting essentially as a conduit for capital flight from Italy to Germany.
It has since branched out, allegedly into Aussies, Loonies (Canada), Scandies -- Won?, Real? -- but above all pounds. "There aren't many places to go in this 'ugly contest' if you don't like the euro, dollar, or yen," said David Bloom, currency chief at HSBC.
"Everybody is trying to weaken their currency at the same time. The Swiss have got away with it and now the Japanese want to try. The Sandinavians are pulling their hair out. The Turks are cutting rates even though their economy is overheating and putting in credit controls instead because they don’t want the currency to rise."
"Policymakers are doing things that if you had suggested four years ago they would have put you in a straitjacket and thrown you in a cell. I don't rule out anything any longer in this market. Desperate times lead to desperate acts," he said.
Mr Bloom said sterling will wilt soon enough as Britain loses its AAA rating and graples with its debts. "We have dramatically downgraded our sterling forecast this year to $1.52 on Cable and 0.88 on the euro. The pound is going to come under a lot of pressure."
This blog is not intended to be an attack on the Swiss, valiant defenders of the democratic nation-state. What they are doing is entirely understandable. Such intervention creates net global stimulus and does more good than harm in a deflationary world.
Still, we have a very odd situation. Much of the world needs a lower currency and a higher interest rate structure to right the ship. But they can't all have lower currencies.
Such is the deformed structure bequeathed to us from the Greenspan era. Or is it the China effect, or are they the same thing?
The brilliant Bernard Connolly (former currency director at the European Commission and later global strategist at AIG) says the rot began in the mid-1990s when the Fed made its Faustian pact and opted for ever-falling real interest rates.
Any thoughts on how we get out of this mess?


A very important commentary today from Mark Grant on Spain:

1. the Spanish pension fund is now 90% flushed to it's gills in Spain sovereign debt

2. Spanish banks are also tapped out as far as purchasing sovereign bonds.

3. Spain in 2013 will need 270 billion euros of new bonds to finance it's economy an increase of 10% over last year.

4. Spain will need to approach the EU and ECB for a bailout as it has no choice.

Spain - Out Damned Spot

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,
“And it is a mark of prudence never to trust wholly in those things which have once deceived us.”
                      -Rene Descartes


If you own the debt of Spain; sell it. If you are thinking about buying their sovereign debt; don’t. I hope that is clear enough. I don’t believe that I have left out any corner of my thinking or that there is any wavering on my part. All of the new Spanish debt will carry Collective Action Clauses which gives Spain the right to force bondholders to their knees. This is reminiscent of Greece and we should have all learned the lesson from that experience. Then there is what Spain certainly might do which is to retroactively pass CAC’s when expedient for the nation so that all Spanish debt could include these clauses. The clear signal here is that Spain is in serious trouble or CAC’s would not be an issue and that the State will put it to bondholders if necessary. Spain has benefited from Draghi’s “Save the World” plan which was by far the best move of the European Union in 2012. Yields are down, the central bank is the backstop and the ECB’s promise has limited the interest that each nation in Europe has to pay for their debt.

Yet there are two sides to this coin and that is that not only will interest rates affect the sovereign debt of a nation but the absolute amount of debt can also play havoc with the finances of a nation. The Wall Street Journal reports this morning that 90% of Spain’s national pension fund has now been utilized in buying Spanish debt of various sorts and class. This means that $77 billion has now been spent on propping up Spanish debt while another $7 billion has been withdrawn in cash. The pension fund is effectively out of money now and how they will fund their social security system is anyone’s guess. Spain plans to issue $270 billion of new debt in 2013 which is up from $242 billion in 2012 or a 10.5% increase. Even as the pension fund buying is unable to continue, the Spanish banks are up to their eyeballs in Spanish debt and the losses at the Spanish banks continue to mount. It is my opinion that Spain will be forced to the till at the ECB and the EU and that the amount of financing that will be demanded will cause rancor in the fiscally disciplined nations. For all of these reasons I have concluded that Spain is a disaster in play and their debt should be avoided or sold.

The United States

The Fed’s recent minutes provide a notable change of course in their policy. On one hand it is a positive as the Fed is slowly coming to terms with the fact that there are limits on what it can do and that monetary policy is not an endless charade. On the other hand it is a marked change from what they have told all of us before which calls out their promise to keep rates low well into 2014 so that political/economic expediency could reverse their prior promises. The slope is certainly slippier but at least there seems to be a recognition that the ballooning of their balance sheet has repercussions. Yet the $95 billion of monthly buying of Treasuries and mortgages continues for now, the supply of new issues is limited and the recent back-up in long yields is at least partially off-set by the free-floating capital that is still resident in the fixed income markets. This can also be said for the equity markets and a real decision by the Fed to curtail their buying programs could set-off a sell-off in both markets. Some accumulated cash may be in order while Municipal Bonds represent the best value currently in the marketplace. The sword hangs in the balance while severe economic problems in Europe may also booster both the Dollar and demand for U.S. securities. I would not be in a rush to jump too far now as the forward picture is far from certain.

“There are negotiations being made that are going to answer all of your questions and solve all of your problems. That's all I can tell you right now.”

                        -The Godfather


Some Greek towns have learned to leave without the Euro

(courtesy Michael Krieger/zero hedge) 

Guest Post: The Greeks Have Already Dumped the Euro

Tyler Durden's picture

Via Michael Krieger of Liberty Blitzkrieg blog,
[ZH: We first noted the shift to a barter economy that is occuring in Greece back in April. But Mike's excellent update below shows that this 'barter' has progressed to a new 'alternative' currency]
Really fascinating article about how many cities and communities in Greece have already moved on from the euro to bartering as well as alternative currencies.  The city of Volos, 200 miles north of Athens with a population of 170,000 is highlighted in the article due to the size of its alternative money market centered around a local currency call the Tem.  This sort of behavior will be the wave of the future in all countries, as Central Bank currencies are debased into extinction.  It’s interesting because while I was in Crested Butte over New Year’s I noticed they have a local currency going there calledCrested Butte Bucks and I was really surprised to see that you can spend them pretty much anywhere in town.  I also highlighted this trend in my post earlier this year English City of Bristol Launches its Own Local Currency.
Now, from the Guardian:
It’s been a busy day at the market in downtown Volos. Angeliki Ioanitou has sold a decent quantity of olive oil and soap, while her friend Maria has done good business with her fresh pies.

But not a single euro has changed hands.

In this bustling port city at the foot of Mount Pelion, in the heart of Greece‘s most fertile plain, locals have come up with a novel way of dealing with austerity – adopting their own alternative currency, known as the Tem.

“Frankly the Tem has been a life-saver,” said Christina Koutsieri, clutching DVDs and a bag of food as she emerged from the marketplace. “In March I had to close the grocery store I had kept going for 27 years because I just couldn’t afford all the new taxes and bills. Everyone I know has lost their jobs. It’s tragic.”

For local officials such as Panos Skotiniotis, the mayor of Volos, the alternative currency has proved to be an excellent way of supplementing the euro. “We are all for supporting alternatives that help alleviate the crisis’s economic and social consequences.”
Full Guardian article here.


Your early Friday morning currency crosses;

This morning we continue with the course set from yesterday. The Euro retreats big time against the dollar.
The Yen, however falls badly against the dollar as Abe continues on his quest to massively hyperinflate his economy.  The British pound also loses big time  against the dollar.  The Canadian dollar loses its gains. We have a risk is off situation and thus all bourses are down: 

Euro/USA    1.3000 down  .0024
USA/yen  88.30  up .589
GBP/USA     1.6014 down .0060
USA/Can      .9913  up   .0029


your closing 10 year bond yield from Spain:  




5.057000.03400 0.68%


Your closing Italian 10 year bond yield: 
a rise in yield.

Italy Govt Bonds 10 Year Gross Yield



4.265000.03300 0.78%
As of 01/04/2013.


Your 5:00 pm Thursday currency crosses: 

the Euro regained some of it's losses suffered in the early morning. The Yen strengthened a tiny bit against the dollar late in the session.  The pound also caught some bids and strengthened against the dollar as did the Canadian dollar:

Euro/USA    1.3067 up  .0043
USA/Yen  88.14  up  .429
GBP/USA     1.6067 down .0007
USA/Can      .9873  down .0010


Your closing figures from Europe and the USA:
 everybody in the green as everything is reversed from the morning:

i) England/FTSE up 42.5  or 0 .70%

ii) Paris/CAC  up 8.85 or  0.24% 

iii) German DAX: up 19.93 or .26% 

iv) Spanish ibex: up 32.40  or .39%

and the Dow: up 43.85  points or .33% 


And now for major USA stories:

The jobs report was a yawner!~

(courtesy zero hedge)

155,000 Jobs Added in December, Unemployment Rate 7.8%

Tyler Durden's picture

A surprisingly uneventful report, as BLS reports that 155,000 Jobs were added in December, right on top of the 152,000 expected, and in line with the number needed to keep up with the growth in the population, or at least the Old Normal growth - in the New Normal only handouts matter. The unemployment rate was 7.8%, vs the 7.7% expected: who else is surprised that the rate is now rising with Obama reelected and when a lower unemployment rate means an earlier end to QE4EVA? The November unemployment rate was revised from 7.7% to 7.8%, just so headlines can proclaim the rate was unchanged. According to the household survey 191,000 jobs were added. Average hourly earnings for all employees rose 0.3% in December from November, compared to the 0.2% expected. The Underemployment rate, U-6, remains steady at 14.5%. ADP, which will certainly be revised lower now, remains a farce.
The labor force participation rate: 63.6%, same as November:
A job breakdown from the report:
Total nonfarm payroll employment increased by 155,000 in December. In 2012, employment growth averaged 153,000 per month, the same as the average monthly gain for 2011. In December, employment increased in health care, food services and drinking places, construction, and manufacturing.
Health care employment continued to expand in December (+45,000). Job gains occurred in ambulatory health care services (+23,000), in hospitals (+12,000), and in nursing and residential care facilities (+10,000). In 2012, health care employment rose by 338,000.
In December, employment in food services and drinking places rose by 38,000. In 2012, the industry added an average of 24,000 jobs a month, essentially the same as in 2011.
Construction added 30,000 jobs in December, led by employment increases in construction of buildings (+13,000) and in residential
specialty trade contractors (+12,000).
In December, manufacturing employment rose by 25,000, with small gains in a number of component industries. In 2012, factory employment increased by 180,000; most of the growth occurred during the first quarter.
Employment in retail trade changed little in December, after increasing by 143,000 over the prior 3 months. Within the industry, employment in clothing and accessories stores fell by 19,000, following gains that totaled 55,000 over the prior 3 months. Elsewhere in retail trade, employment in automobile dealers and in food and beverage stores continued to trend up in December.
Employment in other major industries, including mining and logging, transportation and warehousing, financial activities, professional and businesses services, and government, showed little change over the month.
In December, the average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.8 hours. 


This is where a lot of the jobs landed: in the 55 years and older crowd.

(courtesy zero hedge)

Where The Jobs Are: "55 And Older"

Tyler Durden's picture

A good jobs report? Sure, if one is 55 and over. In December the American jobs gerontocracy continued its relentless course, and as the two charts below summarize since Obama's first term,some 2.7 million jobs in the 16-55 year old category have been lost. The "offset": 4 million jobs for Americans between 55 and 69. For all those young people graduating from college (with $150,000 in student loans) who are unable to get a job, here is our advice: tell your parents, and grandparents, to retire already. Oh wait, they can't because Bernanke destroyed their savings. Oops - better luck next time.
Job "gains" for all Americans 54 and younger vs those 55 and older:
And the same broken down by segment:
Source: BLS


Dave in Denver has got it right: the ending of QE is a big lie.

He also has insights in the jobs report as to how many are actually affiliated with government.
He states that the numbers will not be sustainable in the sequestering of job cuts in two months.

(courtesy Dave in Denver/the Golden Truth)


The Big Lie

A lie always contains a certain factor of credibility, since the great masses of the people in the very bottom of their hearts tend to be corrupted rather than consciously and purposely evil, and that, therefore, in view of the primitive simplicity of their minds, they more easily fall victim to a big lie than to a little one, since they themselves lie in little things, but would be ashamed of lies that were too big - Adolph Hitler, "Mein Kampf"
Most of you are aware by now that the FOMC minutes for the December meeting released yesterday contained a statement that suggested more FOMC members were interested in ending the Fed's bond buying program - aka QE - by the end of 2013.  The precious metals were immediately hammered, while there was very little reaction in the bond market and no reaction in the S&P 500 or the housing stocks.  Hmmm.

There's two problems with the above.  First, if it were indeed true about the Fed ending QE by the end of 2013, think about what that would mean for interest rates, mortgage rates, the housing sector and the economy overall.  If the Fed stopped buying Treasury and mortgage bonds,  interest rates would spike up several hundred basis points and the economy would really tumble off the cliff.

Second, who will buy all the new Treasury debt issuance?  The Fed has purchased well over 50% of all new Treasury issuance in the last three years.  If there Fed were not buying this paper, who would?  Seriously.  Either future Treasury bond auctions will fail OR it will take significantly higher interest rates to induce new money into Treasuries to make up for the trillions the Fed has been buying.  Or, of course, the Government will balance its spending and won't require additional Treasury issuance...I would lay all my money on any bet that the latter will never happen.

So I guess the FOMC minutes were a big lie.  It's not the first time the Fed has suggested that QE would not continue, only to be expand it within 6-9 months.  Government deficit spending = de facto QE.  The second Big Lie today was with the BLS employment report.  As it turns out, I found a big gaping hole in the employment report today and I have not seen anyone question the number in any of the prolific material which explains why the BLS employment report is fictitious.

You can read my analysis here:  The Big Gaping Hole In The BLS Jobs Report

Needless to say, the Fed has already committed to buying a $trillion more in Treasury and mortgage debt in 2013, and unless the Fed is prepared to shoulder the consequences of ending that program rather than expanding at the end of 2013, yesterday's plunge in precious metals can be seen seen as a true gift from the markets by anyone who takes advantage of it.

  (courtesy/Dave in Denver/seeking alpha)

The Big Gaping Hole In The Employment Report And Fed Folly...Dave in Denver

One of the most important aspects of financial analysis is determining not only the reliability of reported numbers (accounting issues) but also analyzing the "quality" of a reported number. "Quality" includes the sustainability of a business model - and the quality of the underlying sources of revenue and profit generation.
Without getting into the whether or not the monthly employment report is a manipulated and fictitious number - much has been written about this and it's now commonly accepted that the jobs report is not believable - I stumbled on an aspect of the Bureau of Labor Statistics'(BLS) monthly employment report that has a huge hole in it. I have not seen anyone comment on this aspect of the employment statistics or question the "quality" of it.
The fact of the matter is that even if the jobs growth number is bona fide, it's not sustainable and the fact that it's not sustainable means that yesterday's Fed minutes report indicating that the FOMC was leaning toward removing QE this year is also more fiction than fact. This being the case, the negative reaction to yesterday's report by the precious metals, mining stocks and bond market is an opportunity to capitalize on the high probability that those market sectors will rebound and move higher over the next several months. Let me explain.
I noticed in digging through the line items of today's report that one line item contributed substantially to the overall headline number of 155,000: Education and health services, 65,000.
Anyone see anything wrong with that number? 65,000 is 41% of the total headline number. But think about the "quality" of that number. How much of that number do you think is the result of direct or indirect Government spending, and thus dependent on taxpayer revenue?
Table B of the BLS report, LINK, attributes 55k of that number to "health care and social assistance." Without knowing the breakdown of that number, I think we can assume most of the jobs in that particular category are funded by Medicare, Medicaid and now, Obamacare. Even the private hospital and nursing service companies that would be considered "private companies" and who hire the people in this category have a large portion of their revenues derived from Government reimbursement/entitlement programs.
Let's examine the "education" part of that line item, which does not get further line item detail in the BLS report. I can summarize the quality of that number with two graphs. This graph shows the recent parabolic growth rate in student loan debt (source of graph: the Atlantic):

(Click to enlarge)
And this graph shows the growth in student loan delinquencies (source of graph: Zerohedge):

(Click to enlarge)
The total amount of outstanding student loan debt according the latest quarterly Federal Reserve report as of September 30, 2012 was $956 billion, with a $42 billion increase in during Q3: NY Fed. It's safe to say that number is now around $1 trillion.
That trillion dollars in student loans is primarily comprised of loans directly owned by the Federal Government and student loans that are guaranteed by either the Federal Government or State Governments. In other words, a significant portion of education is funded directly and indirectly by the Government/Taxpayer. This means that a significant amount of the employment that makes up the BLS' employment report is directly attributable to Taxpayer funding.
In the context of the accelerating level of student loan delinquencies per the above chart, any respectable financial analyst will admit that the growth in student loans, and therefore the portion of jobs growth that is directly attributable to this significant source of direct or indirect Government funding, is unequivocally not sustainable.
Any job growth connected to the student loan source of taxpayer revenue will not be recurring and will likely reverse when real budgetary austerity is imposed on the Government. Furthermore, to the extent that any healthcare related jobs are directly or indirectly connected to Government/Taxpayer funding, they are not sustainable and any real growth in that area will also reverse.
It thus looks like the Government has engineered another questionable monthly employment report in order to make the headline number appear as if the economy is back on track to economic health. But the truth is that even if the number is real, it is clearly not sustainable unless the Government intends to continue on its path of accelerating spending deficits and new Treasury debt issuance.
If the latter is the case in order to keep the economy from falling into a deep recession, the Federal Reserve is going to have to continue expanding its balance beyond 2013 buy continuing its substantial purchasing of Treasury bonds and mortgage-backed paper. Given this likely outcome of future Fed policy, the current plunge in gold, silver, mining stocks and bonds is an opportunity to deploy capital in those sectors and generate trading profits. If you are looking for a shorter term plays, I recommend GLDSLVGDXJ and TLT.


Citi's Englander fears a Fed tightening. I extremely doubt it

Here is his take on the situation:

(S.Englander/zero hedge

On Payrolls, Do Investors Fear A 1994 Redux?

Tyler Durden's picture

Via Steven Englander of Citi,
The median Bloomberg expectation for NFP is 153k, Citi is at 140k; the central tendency of the forecasts is about 125-185k. Among forecasts that have changed today (presumably because of ADP) the median is 180k.  Not everyone shades forecasts because of ADP (especially given its relatively poor forecasting track record) but it seems possible that the true market forecast has shifted up somewhat, maybe to around 160k..
Before the Minutes were released, there was little anticipation or discussion on payrolls. Now that the Minutes are out and have raised market fears that the fed will pull back from ease earlier than anticipated, investors are worried about a repeat of 1994, when a surprise Fed tightening after a long period of easy money (by standards of those days) devastated fixed income markets. Then 10yr Treasury yields rose 170bps over a two month period.
In that light, you have to respect bond market skittishness, whenever 10yr Treasury yields go up by 21bps over three business days. We are not convinced this is what the Fed intended to convey. With fiscal tightening taking 1%+ off US GDP growth in 2013 and mortgage spreads versus Treasuries wider than the Fed hoped for, monetary conditions may not be as easy relative to underlying domestic demand as the Fed intended.
However, you have to respect the market response. And if payrolls come anywhere near close to a 200k handle we will very likely see further a further equity and fixed income sell off. So there is the possibility that we will have a much more exciting morning after payrolls than anyone had anticipated. With investors having started the year buying risk hand over fist, any sign that the Fed is less than forthcoming will likely lead to position cutting. As much as we have liked the risk trade, fear of Fed tightening would likely reverse the trade at least temporarily.
Levels to watch – even with some upward revision to expectations, above 180k would be well above the last three months and viewed as being above trend. Above 200k would bring back the optimism of early 2012, but probably lead to major asset market setbacks, with rate fears dominating stronger activity.
On the weak side 130k would now be viewed as disappointing, barely at trend and showing little change from the prior three months. That might re-establish the expectation that ease is likely to be persistent.
Given the Fed’s use of the unemployment rate as a threshold indicator (even as they insist that they will not use it mindlessly and independent of participation rates), a drop to 7.6% will stoke even more fears of impending tightening.  The consensus is almost even divided between 7.7% and an uptick to 7.8%, with 7.6% a tiny minority, so the pain side is still lower, rather than higher, unemployment.
In currency terms JPY is vulnerable as US yields approach the critical 2% level. However risk correlated currencies in both G10 and EM stand to lose if there is a sharp adjustment downward in the expectation of liquidity provision. So even if US fixed income investors face the prospects of severe losses on their holdings, the prospect of US hikes should be worrisome enough to lead to cutting of short USD positions. 


Jim Sinclair on why there is no practical option to end QE!!

The Federal Reserve Really Has No Practical Option To End QE

Mr. Jim,
Sorry to hear you have to hand hold the unfaithful…
Kindly let me know if I am missing something:
1. Fed stops buying the 10 year. As Fed is buying something like 60% of the 10 year, supply constant to up, demand falls, interest rates go up and bond prices go down. Existing bond holders take a haircut, new issuances have to go out at higher rates. Economic activity decreases, perhaps intensely
2. Fed stops buying, slows down buying MBS. MBS predicated on 10 year rate, MBS rates rise/MBS nominal value falls, refi rates rise, house fini market slows (crashes!)…
3. Fed jumps in, buys with gusto, market loves the juice and all is (s)well…
Rinse, lather, repeat.
The idea that these guys can stop, even slow QE seems ridiculous to myself, similar to a fool trying to refute Newton`s 3rd law of motion.
As always, thanks for your time!
Dear Rod,
To some degree, yes. Keep in mind that "QE to Infinity" has nothing to do with Main Street. It has to do with the lingering real balance sheet problem camouflaged by FASB permission for financial companies as a product of their ability to value their OTC derivatives at whatever price pleases them.
If QE comes to an end it will further impact the lending ability and willingness to lend by major institutions. You CANNOT show up on the doorstep again with QE and expect that all factors will move in a desired direction. There is no other tool out there to handle the unique economic problems of today (buy time) other than QE.
It will be interesting to see if the PPT (plunge protection team) can hold general equities up via their immense spreads.
Now negative economic news becomes more positive for gold as it makes, in the mind of the market, more difficult to take a hawkish stand at the Federal Reserve, which the cessation of QE would certainly be. On the other side, good economic news would have the opposite impact.
I cannot at present conceive of a better answer now to you inquiry than to again post what I explain correctly as the reality of the subject of QE, so important to understand.
Dear CIGAs,
Such an announcement has been part of QE either from MSM or some Fed board member since it began. The implication of stopping QE is so dire to the economy that it is in a practical sense impossible. When gold was being sold by central banks during the 1970s market announcements were made constantly with the bias to depress metals.
There is no way that the implications and consequences of what has been done up to now can be talked or manipulated away. There is no practical way that QE can cease here or in Euroland without a total and final collapse of the financial system. Just go back to the IMF report on OTC derivatives I posted this morning. If QE ceases, the US bond market collapses and the Fed must debt monetize all required debt, which means if QE stops, it starts up again immediately and in a crisis mode.
I have to admit that if you have been a reader here for any length of time you should know this without asking me. The pressure that people unload on me during any gold reaction is downright mean.
The statement that QE can stop is simply MOPE. QE cannot stop or the world ends as you know it.
Please print this out and post it on your computer because every time the long cycle guy repeats his year old bear gold price prediction or the Fed says anything about stopping QE, you all go wild. It is embarrassing really.
If you do not understand what you are in, why are you in it?
Truman said it all when he said if you can’t stand the heat, get out of the kitchen.
The Federal Reserve has no practical option to end QE without ending the economic world for decades to come. Should that actually occur in some parallel universe, only gold will protect those citizens from the collapse of the by-default reserve currency. I am sure i have written this at least 200 times.

There is talk of minting one coin, say platinum and depositing it at the treasury.  The value of this coin would be 1 trillion usa and thus would wipe out 1 trillion in debt.

Art Cashin talks about this nonsense:

(Art Cashin/zero hedge)

Art Cashin On The Trillion Dollar Coin Alchemy

Tyler Durden's picture

It would appear that even the venerable Art Cashin had to rub his eyes in incredulity at the recircling of the idea of the Treasury minting a "Trillion Dollar Platinum Coin" to solve the debt-ceiling 'problem'. His brief discussion on the idea is summed up perfectly in his final six words "anybody got an ebook on alchemy?"

Via Art Cashin: The Mayans Weren't The Only Ones With Strange Ideas
With a debt ceiling battle about to resume, a rather bizarre idea from last year's debate has resurfaced.It appeared on a couple of blogs and concerned the minting of a "trillion dollar platinum coin". Under section K of Federal law, the Treasury Secretary appears to have carte blanche on the design and issuance of platinum coins.

The Treasury normally writes checks against the taxes it collects. When the tax receipts run out, they borrow money (bonds) to write checks against. That borrowing can run up into the debt ceiling, resulting in the looming confrontation.

The thesis claims that Geithner should authorize the coin, deposit it at the New York Fed and write checks against it, rather than selling more bonds.

Anybody got an eBook on alchemy?
Only those who have no clue about the money creation process in a fractional reserve economy could be vacuous enough to suggest that an idiotic "fix" such as this has any hope of working. All the proposal does, in effect, is suggest adevaluation of the currency relative to an absolute precious metal asset, which in itself is nothing new, and most recently was conducted, with great "success" by FDR in the 1930s.


An easy way to eliminate 2 trillion USA of debt via intergovernmental loans.

you will enjoy this

(courtesy Bruce Krasting)

A Challenge to Business Insider and Huff Post

Bruce Krasting's picture

Two liberal Emags have been pushing for the "Platinum Coin" as a solution to the upcoming debt ceiling crisis.




Adding to the push by the liberal media, the White House is sponsoring a petition to “force” the Treasury to issue a coin for a trillion or two. I want to barf at this talk.


In my opinion, there is no substance to the coin solution. In theory, it does resolve the debt limit issue that is just months away from a crisis. But that would be a terrible outcome for the country. Any chance at achieving fiscal discipline and a sustainable debt path would be lost.

Yesterday, the Fed indicated that it was closer to ending and reversing QE than had been previously been thought. If you believe the Fed (I don’t), then you should expect QE to end before the end of the year, and the long process of unwinding the Fed’s balance sheet will begin. But if a coin is used to replace the bonds the Fed has in inventory, the Fed will be powerless to reverse QE. The coin makes prior QE permanent. I see that step as the ultimate “fold” on responsible monetary policy. It’s a cheap way to avoid the country’s “Speed Bump” on explosive debt creation.

Bottom line: The coin is a phony solution to a real problem.


I want to say in print that I will support the coin concept with all of the resources I can bring to bear. I will write about it, I will sign petitions, I will march on DC, and I will put up money to support the cause.


My support is conditional on a minor revision of the “plan” spelled out by Huff Post and Business Insider. My plan:

- Three coins are issued. Two for $500B; the other for a cool $1T. I would use these coins to extinguish $2T of debt.

- The $2T of debt reduction would be sufficient to bridge the country to 2015. As a result, the country would benefit from two years without a self-induced financial crisis. The $2T buys the country breathing space through the bi-elections. My coin solution would take politics out of the process for a much needed 24 months.

Like it so far? Now, the key difference between BI/Huffy and me:

- A $500B coin would be given to the Federal Employee Retirement System (FERS).

- A $500B coin would be given to the Military Retirement Fund (MRF).

- The $1T coin would be given to the Social Security Trust Fund (SSTF).

The government Trust Funds (TF) for FERS, MRF and SSTF are holding a whopping $4.6 Trillion today of government IOUs. My plan would reduce that by less than 50%.

The debt held by the TFs is more of an accounting entry than a real debt. The bonds held by the TFs do not, in any way, secure the promises that the government retirement funds have made to current and future beneficiaries. The benefit payouts are set by Congress; they can be changed at any time. The existence, and the size of the TFs, has nothing to do with benefits.Period.

I believe that my proposal is a substantial improvement to the one being pushed by the liberal media. It achieves everything that those folks have been pushing for. It does that without tying the Fed’s hands, or creating the risk of future inflation.What’s not to like with that result?

There is not one chance in a million that the likes of BI and Huff Post would go for this. These outfits do want to see the pesky debt limit problem disappear, but they LOVE Social Security.

My challenge to Arrianna Huffington, Henry Blodgett and Joe Weisenthal is to step up to the plate, and make a real stand on the coin. Do the “right” thing. Do the “smart” thing. Mint your coins; buy the time you think we need, just put those coins of yours in the tills of America’s Trust Funds.

My bet here? I never hear from Arianna, Henry or Joe. Their base of readers would crap in their pants over my suggestion. The readers would rip those Mags apart with criticism. Those“influential” supporters of the coin plan that BI keeps referring to would run away in droves. Those who want coins are also pregnant with their support of SS. BI and Huff Post can’t do the right/smart things. If they can’t do the right things, they should just fold their cards on the coin idea.

I wrote about using a coin to extinguish federal debt owed to Social Security on 10/31: How To Eliminate $4.5 Trillion of Debt.


The CBO admits an error in its calculations on the 10 year cost of the fiscal cliff agreement.
The new cost:  4.6 trillion dollars over 10 years.

(courtesy zero hedge)

Friday Night Dump: CBO Admits Error, Now Expects Another $600 Billion In Deficits From Obama Tax Cuts

Tyler Durden's picture

Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, amounting to $290 billion, was the assertion that the US willsave hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasuries, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions).
It appears that they just did... after the close... on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interestthe full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.
But what's $600 billion for a nation that is now discussing idiotic gimmicks involving $1 trillion coins as a means to avoid reality.
Here is the Friday night bomb in all its glory (link):
Relative to what would have occurred under the laws previously in effect, this legislation will increase budget deficits in coming years.

Like all of CBO’s cost estimates, our estimate for this legislation shows the effects of the legislation relative to current law at the time we did the estimate. Relative to the laws in place at the end of 2012, we estimate that this legislation will reduce revenues and increase spending by a total of nearly $4.0 trillion over the 2013-2022 period. (Also like all of CBO’s cost estimates, this estimate’s numbers for the effect of changes in the tax code—which represented the bulk of the bill—were produced by the staff of the Joint Committee on Taxation. They published the details of their tax revenue estimates separately.)

From that perspective, why will the legislation increase deficits? Mostly because, under the laws previously in place, numerous tax provisions originally enacted in 2001, 2003, and 2009 would have expired. As a result, in 2013 personal income tax rates would have gone up for people at all income levels, the alternative minimum tax (AMT) would have applied to many more people, estate and gift taxes would have risen, and a number of other revenue-increasing changes in tax law would have taken effect. This legislation will prevent those changes in law from occurring or reduce their scope; hence, relative to what would have happened without the legislation, it embodies substantial tax cuts. The legislation also will boost deficits by increasing spending, mostly for refundable tax credits and unemployment compensation.

That dramatic widening of the budget deficit will increase interest payments on the federal debt,an impact that is not included in CBO’s cost estimatesThe additional debt service will cost about $600 billion. Thus, if we added the estimated cost of the legislation and the related debt service to our previous baseline budget projections (which followed current law at the time), we would show additional deficits between 2013 and 2022 of roughly $4.6 trillion.
And, while tangential, here is something else rather funny: the CBO attempts to predict the GDP in 2022, in both absolute terms and relative to the prior baseline. While ludicrous, at lest they get the general direction right:
What Effect Will the Legislation Have on the Economy over the Longer Term?

Although we expect that the legislation just enacted by the Congress will lead to higher output and income in 2013 we also expect that it will lead to lower output and income later in the decade than would have occurred under prior law. The legislation lowers tax rates for many people—thereby boosting output—but it also expands budget deficits—which will reduce national saving and lower the stock of productive capital, thereby reducing output relative to what would have occurred under prior law. CBO has not estimated the longer-term economic effects of the legislation itself, but we previously estimated the economic effects of the aforementioned alternative fiscal scenario, which embodied the assumption that many policies that were in effect or had recently been in effect would be continued. Under that scenario, as described on page 37 of our Update, we estimated that real gross national product (GNP) would be 1.7 percent lower in 2022 than would have been the case under prior law. .
Remind us to look back on this post in one decade to find just how misplaced that decimal comma truly was.
* * *
Is it just us, or does it really seem like nobody is even trying to mask the fact that the iceberg has been hit head on?


I will leave you today with the following Santelli rant where he points out that Conservative Republicans are not the lunatics out there:

(courtesy Econmatters)

Rick Santelli Is Right!

By EconMatters

Today on CNBC during the coverage of the monthly employment report, Rick Santelli pointed out that there is some absurdity in calling the Republicans “lunatics” when they are the only responsible voice in Washington right now trying to call attention to the out of control government spending in the overall context of an unsustainable federal deficit while the Democrats are running the country into the ground with even additional spending programs that the government has to borrow more money to fund.

His point is that if anybody should be labeled a lunatic, it should be the Democrats and those that are encouraging these unsound financial spending policies.

I was highly disappointed in the Republicans over the weekend. First of all, the Senate and House needed to have one voice on this issue, and the Senate Republicans threw the House Republicans under the bus by going along with the boneheaded tax increases, and ‘no spending cuts’ deal negotiated by the vice president.

Every Senator who voted for that deal needs to lose their seat next election period. But then to add additional pathetic, spineless insult to injury the House Republicans led by John Boehner had a chance to send a message and they shrunk from their responsibility on the issue of being the check and balances to the Democrats spending spree in Washington, and they chickened out when the spotlight was on them to shine!

How hard would it have been to amend the deal, and send it back to the Senate? That is how Washington is supposed to work, to get better deals through a negotiation process between the two legislative bodies, sort of defeats the entire need for two bodies if one is just going to rubber stamp the other`s decisions! Boehner is a terrible leader, he needs to be fired, and every member who voted for that deal in the house needs to be replaced for the next election cycle!

With regard to the Democrats there is no hope for them, and this is literally their last hurrah as the country is faced with Greek style tough love once interest rates go up to the normal levels again, the US will be put on a budget by China our major creditor just like Greece was by Germany.

Rick Santelli then tried to make the point that sound financial principles are in and of themselves good, i.e., the math makes rational business sense. Furthermore, that the government should operate just the way individuals and families do with budgets and within their overall means. The panel rejected this idea stating that government finances are different from household finances. Somehow these government finances are more sophisticated, have more complexity, and are not as straight forward as personal finances.

I get that they are bigger, I get that government finances affect more people when they are forced to adhere to a budget, or their “car/bridge” gets repossessed, or that they can just print more money and have a bigger credit card in essence.

I get all of that, but the numbers are so out of whack right now from a spending standpoint, escalating 16 trillion outstanding debt burden, and the future trend line with obligations due by 2025, that even with today`s once in a lifetime low interest rates, the country is headed for sovereign default on its loan obligations.

Hence Rick Santelli is right, sound financial principles are the same regardless of which level we speak to in personal or government. The government may have a bigger credit line, but that`s the only difference, and it means that the government can dig a far bigger hole and do far more damage than a consumer with a finite credit line.

The problem with having creative finance tools that enable the government to kick the can down the road for so long means that the government is actually in far worse trouble than the consumer who reaches a much more containable default level due to a resource stop loss in effect.

The consumer runs up 100k in debt, the banks stop lending; they declare bankruptcy at much more sustainable default levels. The government on the other hand, through creative finance techniques can dig such a large hole, i.e., Greece, that the damage can not only take down an entire Country`s standard of living, even after default, but hamper growth in the Euro region even though it is a small component of overall GDP.

Just compare the standard of living, and Greek lifestyle of today versus just five years ago. Greece has essentially lost entire parts of their economy due to the effective sovereign default at the hands of creditors. Streets which once thrived with shoppers and business activity are replaced with plywood and graffiti. A modern day ghost town!

Now picture the United States and the size of the hole that the US is digging with these creative money shuffling techniques, and the alarm bells should be sounding off right now all over the world. Because by the time you get to Greece`s level where the bond vigilantes make the government face up to the problem, the problem is too far gone. It is too late; there is nothing that can be done about it.

Right now we have limited options, but it is still possible, but just barely and with a radical change where everything we have done for the last 30 years of spending, annual budget deficits, and taxation needs to be completely reconfigured and overhauled.

 And I am not talking about some tweaks that Washington is addressing now in the dialogue. I am talking a major paradigm shift in budgetary thinking, about 2013 and not having a budget deficit, whatever it takes. And it will take spending cuts; we collect enough tax revenue in this country. It is ridiculous how much tax revenue this country takes in each year.

So whatever that number is, we need to spend less than that amount in 2013. That is the first step of the United States 12 step program. Until we balance, and I mean a real balance, not some funny budget gimmicks, the budget everybody in Washington is a bunch of “lunatics”!

Moreover, the mainstream media should be chided for not doing their job, and holding Washington`s feet to the fire with regard to implementing sound financial principles into the government budgetary framework, and not busy promoting additional, irresponsible, creative finance workarounds that just dig the country into a further hole by not facing up to the real issue.

Balance the freaking budget, develop a surplus, and start paying down the country`s debt! Sound financial principles at work whether in the context of a government or household.

Ergo, the media needs to spend less time inventing and promoting “Governmental Coin” budgetary gimmicks and start asking some tough questions of our governmental representatives like, Does the 2013 budget balance with projected revenues? If not, why? What do we need to do to make this the last year where this country runs a budget deficit? Remember, you cannot even start to address the national debt, until you finally have a budgetary surplus!

Yes, Rick Santelli given the context of the consecutive years of running budgetary deficits, the size of the federal debt, and the projected obligations going forward, anyone not for major spending cuts in Washington or the mainstream media is an actual “Lunatic”. 

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Well that about does it for this week.

I hope you have a grand weekend.

I will see you Monday night.


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