Cast Aways: A Thought Experiment

Here is a thought experiment:

Imagine an Island with population for 4 people: Frank Farmer, Charlie Chef, Mike Miner, Sam Smith.

Frank grows grains for all the other three, Charlie bakes and cooks for all the other three, Mike Mines Iron & coal, and Sam makes tools for all the other three. They sleep in caves and live their lives.

Frank saves some grains for that proverbial rainy day. Mike saves some coal and steel, just in case the mine collapses, or if he falls sick. Charlie pickles some vegetables and meat, just incase. Sam keeps few extra tools, just in case he becomes handicapped.

One fine day, Barry Bum washes up the shore of the Island. The islanders welcome Barry. They had an overdose of confidence. Out of the goodness of their heart, they feed Barry the first day. Barry promises that he will pay them back with interest. Next day, Barry eats another meal and gives them an IOU. All of a sudden, Charlie realizes that there is more demand for his cuisines, he starts to serv up his savings. He realize that he needs more utensils, which comes from Sam's savings. Sam suddenly realizes that he needs to replenish his savings, and demands more from Mike's savings. Charlie demands more grain from Frank and that starts to deplete Frank's savings. This goes on for some time as everybody keeps themselves busy. Barry in the mean time takes a vacation to a near by island for a couple of days and comes back ( Home equity extraction ). Once the savings gets depleted, people work harder and produce a little bit more than they used to, to feed the extra person Barry.

Then proverbial rainy day arrives; Charlie falls sick and decides to cash the IOUs he has recieved from Barry. However, Barry has nothing to pay his debts with and hence no way for Charlie to repay his own debts back to Frank or Sam. This causes Sam to realize that he has no way of paying Mike. A credit crunch takes shape. They also realized that there is no need to do the extra work to keep feeding the unproductive Barry. Suddenly Charlie stop producing for Barry, hence he demands less from Frank and Sam.

Ed Empircal Economist comes to the picture and says, there is a lack of confidence. Charlie needs to start feeding Barry as if nothing has happened. He says aggregate demand is going down. See all the idle tools now? Government needs to take over and put these "idle" resources to use.

The reality is, economy was consuming more than it was producing, thus depleting the savings. It was malinvested in unproductive activities. May be, just may be, all the tools and savings allocated to making baking utensils need to re-allocated to some productive activity. May be they need to make pull-carts to transport the produce and iron ore.

If you introduce money into this island's economy, nothing changes. When the farmer produces 100 island dollars worth of grains and produce, converts it to cash and save 10 island dollars, that savings exist as real goods in the economy. Same goes for Mike Miner, Charlie Chef, Sam Smith. When an entreprenuer borrows money to invest, he is actually creating claims against these savings of real resources and putting them to use.

Printing a bunch of money and throwing into the island is not going to make the savings re-appear overnight. The depleted savings have to be rebuilt.

Real life characters are unlikely to lend to Barry the bum to the point of their ruin. Which is the reason why Garry Government, takes away the risk by guaranteeing all the loans, implicitly or explicitly.

Peter Schiff Interview On Glenn Beck Radio

Part I



Part II

Government Solutions

In trying times like this, we need some real inspiration :)

Central Banking in a Nutshell

Just for a laugh..... ( via campaignforliberty.com )

Admission of Guilt! A Reply to Mish

Mish over at the Global Economic Analysis asks the following in the comments section:

“Can I ask a question?

With oil at $84 ....
Where is Oil Shock?

Mish
Like this comment?
link to the post

Oil Shock was indeed wrong. Yes, I called the bottom at $90 for oil. It was indeed the bottom until Oil declined one more time. Yes, so far it about 7% below that price. I still have called a perfect bottom in gold. Dollar index is about 2% higher than my prediction top.

Australian Dollar cliff dived yesterday, partly due to the unwinding of the carry trade. Just two months ago, the Ozzie was at near parity with the USD, but today you could buy 1 Ozzie for 64 cents U.S. Do you think Australian economy is fundamentally a lot weaker than the U.S economy? Do you think what happened to Iceland and Australia are impossible to happen here?

Much of the strength in dollar index is due to the weakness of Euro, it is not an indication of Dollar strength. Euro is a doomed currency. I heard somebody put it as the Deutsche Mark + some parasites, and that is very true.

Was my bottom and top calls based on any specific formula? No. It was just rhetoric meant to say that inflation is still in play. Did I strongly believe in my prediction? Yes I did. Did I know that for 100% sure that Oil will bottom at $90.00, and Gold at $750? No I did not.

As for all those deflationary derivatives worth 500 trillion floating around, it is all hogwash. Derivatives can go to zero and 80-90% of them do, even in a bull market. Have you read stats on options? Most of them go to zero? If one were to really believe that those derivatives are part of the money supply, what do you think the price of a refrigerator full of groceries would be?

Is there an unwillingness to lend right now? Yes. But all the debt will be monetized away, and some more will be accumulated by the local, state, and federal governments and monetized.

Stop kidding yourself. Oil at $84 is a lot higher than were it was, when Mish started denying that inflation was non-existent, go back, he has a lot of charts and graphs starting from 2005 to prove his point.

Mish has been consistently wrong for many years with his predictions, and yet he needs a great deal of credit for predicting the crisis very accurately as it unfolded. There were a lot of guys predicting shallow recessions, muddle throughs etc. But Mish could see a lot further than those others; he predicted a deeper recession. He was just a little early. Mish is still wrong about deflation.

Real wealth is ability to produce real goods, and that is one area that American economy lacks clearly. Yes, America has a lot of productive capacity, but no where close the purported size of the economy. So, what really is backing our dollar? yes,a lot of productive capacity, and a lot more of hot air.

Is it a "Freeze Up" or a "Meltdown"?

CNN: Market meltdown: Global problem, global cure

Independent: Europe shivers as credit freeze hits Iceland

Which one is it?

Peter Schiff versus Diane Swonk ( 06/13/06)

Loose Money And the Roots Of the Crisis

Judy Shelton writes for the WSJ

If capitalism depends on designating a person of godlike abilities to manage demand and supply for all forms of money and credit -- currency, demand deposits, money-market funds, repurchase agreements, equities, mortgages, corporate debt -- we are as doomed as those wretched citizens who relied on central planning for their economic salvation.

Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year's crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.

Why did Keynesians and Monetarists Get It All Wrong?

Bailout marks Karl Marx's comeback ( click to read the whole article )

In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar
interventions following the burst of the dot-com bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

The Bubble Man

Enjoy the music.

Credit Bubble Update - 08/26/07

'Notional' value - like trying to nail down Jell-O

It's hard to think of anything more discretionary, non-vital or even downright unnecessary than a BlackBerry.

Oh sure, they're convenient. Your spouse can e-mail you a to-do list and you can't pretend you didn't get it. You can settle bar bets on the spot with a quick Google search. You can thumb away on the putting green like a big shot. Sometimes you even get work done with it.


Drowning in debt? Lifeguard is credit counseling service

The good news for the Consumer Credit Counseling Service is it's hiring like crazy.

The bad news is, it has to do that.

overwhelmed by desperate homeowners across the country teetering on the brink of foreclosure as the subprime mortgage industry implodes.


Indian outsourcers start to feel subprime fallout

Ripples from the U.S. subprime mortgage crisis have reached India's back-office outsourcing sector, where mostly smaller firms are feeling the pinch as U.S. companies cut back or stop some spending on services.

Already struggling with a stronger rupee and rising wages, the fear for outsourcers is that the subprime woes will spread, although larger players such as Infosys Technologies say this could open up new opportunities.


Sub-prime mortgages catalyst for freefall

For a while there, it seemed like the fair-weather types on Bay Street, and elsewhere in the financial world, had it right. We could all sit back, put our feet up and relax.

The tempest that convulsed the world's capital markets in late July and early August would be short-lived. Even those of us who were enjoying family vacations when the turbulence hit could hardly overlook the alarming reports on TV and radio newscasts and the startling headlines that appeared on the front pages of our newspapers.


Foreclosure fallout: Rescue scams

Jennifer Falke and her family had been in their Columbus, Ohio, home for nearly 12 years when they hit a rough patch in 2006. Falke was out of work and fell behind on the mortgage.

Falke said a flood of mailings and flyers then arrived at her door promising help from foreclosure rescue companies claiming to act as an intermediary between her and her lender to keep her from losing her home.


Moody's cuts 120 subprime RMBS tranches from 2005

Moody's on Wednesday cut the ratings on 120 subprime residential mortgage-backed securities tranches, citing higher-than-anticipated delinquency rates of first-lien subprime mortgage loans securitized in the second half of 2005.

The action affects over $1.5 billion of securities.


Ben Bernanke Walks the Line

Much of what Ben Bernanke spends his days doing oscillates between the incomprehensibly arcane and the unspeakably dull. Lately, though, the Federal Reserve chairman has a stark, even exciting task at hand. He's been imitating Jimmy Stewart in It's a Wonderful Life and trying to halt a bank run.

While Stewart's George Bailey had to make do with his powers of persuasion and his honeymoon fund to save the Bailey Building and Loan, Bernanke has the full faith and credit of the U.S. government behind him. The Fed can effectively print U.S. dollars at will. It can even, as Bernanke famously suggested in 2002, drop them out of helicopters, if that's what it takes.


Realtor numbers thin during slump

Victoria Rodriguez was not only a thriving real-estate agent in recent years, she was honored as one the area's top-selling real-estate agents four years in a row.

That was in the boom time, and that spigot shut down to a trickle nearly two years ago.


Mortgage Mess Hurts Main Street, Beyond

The walls are bare, the closets are empty, and Connie and Timothy Pent and their two teenage children are living out of boxes as they wait for a dreaded knock at the door of their three-bedroom house in Ocala, Fla.

They've fallen behind in payments on a their home loan, and their lender told them in July that foreclosure was imminent.

Credit Bubble Update - 08/11/07

Japanese Stocks Drop on Concern Subprime Losses Will Spread

Japanese stocks dropped, joining a global sell-off, after BNP Paribas SA halted withdrawals from funds that owned subprime loan-backed securities.

Declines by lenders and brokerages including Mitsubishi UFJ Financial Group Inc. pushed the Topix index to an eight-month low. Exporters such as Canon Inc. declined on concern mortgage losses will lead to tighter lending conditions and slower global economic growth.


WaMu's shares decline on mortgage woes

Washington Mutual was among a group of U.S. mortgage companies whose stock fell Friday as demand for loans and sources of new money dried up.

The shares of Seattle-based Washington Mutual, the largest U.S. savings and loan, lost 81 cents, or 2.2 percent, to $35.95.

Shares of Countrywide Financial, the biggest U.S. mortgage lender, fell 2.8 percent, while MGIC, the No. 1 mortgage insurer, fell 13 percent.


German Prosecutors Probe Suspects Over IKB's Subprime Losses

German prosecutors opened a formal probe against several people in connection with IKB Deutsche Industriebank AG, the German lender facing a bailout over subprime mortgage losses.

The Dusseldorf prosecution office is investigating whether they may have breached their fiduciaries duties at IKB, Peter Lichtenberg, a spokesman for the office, said in an interview. He declined to identify the suspects or say how many people are under investigation.


Yen Heads for Weekly Gain Against Major Currencies on Credit

The yen headed for a weekly gain against the 16 most-traded currencies as widening credit-market losses prompted investors to unwind carry trades.

The Australian and New Zealand dollars and Norway's krone fell the most against the yen as traders paid back loans in Japan used to fund investments in higher-yielding assets elsewhere. The Bank of Japan joined central banks in Europe and the U.S. in providing cash to ease a credit crunch as a stream of news on subprime mortgage losses roiled the market.


Gold futures close with gains on safe-haven buying

Gold futures rallied Friday, as traders recognized the metal's allure as a safe haven amid worsening credit market troubles that prompted a fresh injection of cash by several central banks.

"Suddenly, the world is realizing that gold is still a safe haven asset," said James Moore, metals analyst at TheBullionDesk.com. "We've seen pretty substantial losses in equity markets."


Shares plunge after ECB pumps a record €95bn into markets

Shares slumped again on both sides of the Atlantic today after the European Central Bank was forced to inject a record 95 billion euros (£65 billion) into money markets as mounting global credit jitters sparked an abrupt scramble for cash by financial institutions.

The unprecedented emergency action by the Frankfurt-based ECB outstripped even the scale of its intervention on the day after the September 11, 2001, terrorist strikes on the US, when it pumped in 69 billion euros of liquidity to stabilise credit markets.


BNP Freeze Causes Carry Trades to Plunge and Central Banks to React in Liquidity Squeeze

There is no denying the fact that the subprime problems have now gone global. This morning, France’s largest bank, BNP Paribas SA announced that they were freezing withdrawals from three of their investments funds following the “complete evaporation of liquidity.” For BNP, this may not be a big deal because the three funds represent only 1.6 billion out of the 356 billion euros that they have under management, but for the rest of the world, this is huge.

Credit Bubble Update - 07/08/07

A Mortgage-Securities Hedge Fund Suspends Payouts

In another sign that troubles in the mortgage market are spreading, a prominent hedge fund that specializes in bonds backed by home loans has suspended redemption requests by investors.

The Horizon ABS Fund managed by John Devaney, a well-known trader of asset-backed securities who is based in Florida, said yesterday that it made the decision to block withdrawals after one investor who accounted for about a quarter of its $650 million in assets sought to leave the fund.


Italease blow-up stokes derivatives fears

A derivative blow-up at the Italian bank Italease has sent tremors through Milan's banking fraternity and exposed the hidden dangers of exotic credit instruments.

The bank has paid off 610 million euros (£419m) in recent days to counter-parties in what amounts to a massive margin call after interest rate rises in Europe caused hedging and derivative losses by clients to mushroom out of control.


Newmont Eliminates Gold Hedges, Creating the World's Largest Unhedged Gold Company, and Announces Strategic Initiatives

Newmont Mining Corporation today announced the elimination of its entire 1.85 million ounce gold hedge position, establishing the Company as the world's largest unhedged gold producer. Newmont also announced plans to monetize components of its royalty and equity portfolio in the next twelve months, resulting in the discontinuation of the Company's Merchant Banking Segment as a separate business unit.


Berlin defends its 'crown jewels'

Germany is drawing up detailed plans to stop strategic assets falling into the hands of "giant locust funds" controlled by Russia, China and Middle East governments.

Finance minister Peer Steinbrück said "telecoms, banks, post, logistics and energy" were among the sectors that would be shielded from sovereign wealth funds, the new state trusts that are fast swamping global asset markets.


Canadian dollar hits high vs. greenback

The Canadian dollar climbed to a 30-year high against the U.S. currency Friday, bolstered by higher oil prices, a strong economy and a looming interest rate hike.

Canada's currency advanced as high as 95.53 U.S. cents Friday, pushing past the 95 U.S. cents mark for the first time since May 1977. It has risen 10.8 percent so far this year.


As 'China effect' reverses, inflation threatens

When the Prime Minister appears on television vowing to "get to grips with inflation", you know that a serious problem is taking shape.

Gordon Brown had the good fortune to be Chancellor over a golden decade as the industrial revolutions of China, India and emerging Asia supplied us ever cheaper manufactures.

In this miracle world, we have had 5pc global growth for five years - the best since the Second World War - without overheating.


Money falls from sky

A German motorist surprised by euro notes swirling in the air around her car hit the brakes and collected a "substantial amount of money" before turning it over to police, authorities in Worms said on Thursday.

A police spokesman in the small western town said the 24-year-old woman saw the money flying through the air in her rear view mirror late on Wednesday. She pulled over and tried to collect all the notes, unsuccessfully.


Subprime risks come home to roost for hedge funds

Bad bets revealed by some hedge funds in recent weeks may mean other funds will be forced to accept the market's deteriorating views on subprime mortgages and report their own losses soon.

Some managers have resisted accepting market views on their assets, claiming declines represent short-term market volatility and not underlying financial value in their subprime bonds, analysts said. Since the bonds trade infrequently, managers' have turned to pricing models that may ignore market sentiment, buoying prices.


Spain selling gold to cover up worsening trade deficit

In an interesting commentary entitled “The Gold of Spain’s Central Bank,” Gerardo del Caz debates the reasoning behind Spain’s massive gold sales, selling off 30% of its reserves (80 tonnes) in just two months. In March of 2004, Spain held eleventh place in the world’s ranking with 523 tonnes, but today has little more than 300 tonnes.


Subprime poor practice risks turning to malpractice

Regulators tread a fine line between the Keystone Cops – galumphing hopelessly after escaping criminals – and Captain Renault in Casablanca. The Financial Services Authority has put paid to the first criticism by warning intermediaries and subprime mortgage lenders before poor practice turns to malpractice. But given the subprime scandal unfolding in the US, the regulator can’t really be “shocked, shocked” to have uncovered market weaknesses.


LBO Loans May Follow Subprime Collapse, Moulton Says

Loans to fund leveraged buyouts may dry up just like subprime mortgages in the U.S., according to Jon Moulton, the British venture capitalist who tried and failed to buy the carmaker MG Rover.

``It's near the top. There are some difficulties beginning to emerge in the debt markets,'' Moulton, who runs the private equity firm Alchemy Partners, told a meeting of the U.K. Parliament's Treasury committee today. ``At some stage no one will be willing to underwrite fresh debt.''

Credit Bubble Hysteria - 07/02/07

S&P, Moody's Mask $200 Billion of Subprime Bond Risk

Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.

The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.


Pound hits 26-year high against dollar

The pound today hit a new 26-year high against the dollar, lifted by expectations that the Bank of England will hike interest rates on Thursday, to 5.75 per cent.

Sterling hit $2.0160 in afternoon deals. The dollar was also weaker against the euro, falling to within half a cent of a record low against the shared currency.


Who's behind the global credit bubble?

The storm warnings are coming thick and fast.

The Telegraph business section this morning has a distinctly bearish tone - even by The Telegraph’s standards.

We’re certainly not ones to criticise - it’s refreshing to see the concerns we’ve been raising for a considerable length of time now getting a serious airing in the mainstream press.


India May Trade Gap Widens to $6.2 Billion on Imports

India's trade deficit widened in May from a year earlier as imports of machinery and other goods surged in an economy that's growing at the fastest pace in almost 20 years.

The trade deficit was $6.22 billion in May compared with $4.26 billion a year earlier, the Ministry of Commerce and Industry said in a statement in New Delhi today. Imports grew 26.4 percent, outpacing an 18.1 percent rise in exports. The trade deficit reached a record $7.1 billion in April.


Wall Street played role in creating subprime troubles

Some on Wall Street want to blame the little guy for the latest hedge-fund mess. People with shoddy credit histories couldn't pay their mortgages so that pushed some funds to the brink of collapse and sent shock waves through financial markets.

Talk about a cop-out — that shifts blame away from the Wall Street firms and banks that had a hand in creating the subprime-mortgage mess but aren't taking responsibility for it.


When will the credit bubble burst?

To understand why there’s a credit bubble, how it’s inflating the price of stocks and what it will mean for you when it bursts, let’s consider the acquisition of Avaya.

The large telecommunications equipment maker recently announced it is being acquired by two private-equity firms, Texas Pacific Group and Silver Lake Partners.


Subprime problems hit WaMu

The Chicago job market continues to be haunted by problems in the nation's subprime mortgage industry, even as federal regulators fashion guidelines they hope will improve conditions in the sector.

Washington Mutual Inc. has disclosed that it is closing a subprime mortgage office at One Pierce Place in Itasca, leaving more than 100 employees out of work, according to a filing this week with the Illinois Department of Commerce and Economic Opportunity.


Liquidity Nightmare... Drowning In Cash

In 2005, Stephen King, managing director of economics at HSBC and also a columnist for the Independent.uk news site stated that there was a crisis of faith among central bankers. Two years later, we can see why this confession should have read as: central bankers must stick to their pseudo-religious tones to proliferate public delusions of invincibility.


Zimbabwe: IMF Says Govt Inflation Figures Understated

THE International Monetary Fund (IMF) this week painted a bleak picture of Zimbabwe's economic crisis predicting that annual inflation will hit the five-digits mark by year-end.

The Bretton Woods institution in written responses to the Zimbabwe Independent on Wednesday said the country was now experiencing hyperinflation as its month-on-month rate had shot above 50%.


Inflation risks still skewed to the upside

US. Core inflation fell more quickly than anticipated so far thanks to lower owners’ equivalent rents and the markdowns for apparel. In the short term, it could even still slide into the Fed’s comfort zone. But the tight labor market, recordhigh energy prices as well as strongly rising import prices will lead to higher trend inflation again over the medium term (pages 4-6).


Move away from U.S. dollar reserves still all talk

Central bank holdings of U.S. dollars continue to mount, despite talk of diversification into other currencies, but questions remain about the sustainability of the rise in dollar reserves.

On Friday, the International Monetary Fund said global central banks' hit a new record in reserves held in U.S. dollars at $2.24 trillion in the first quarter, a 4.0 percent increase from the final quarter of 2006.


Rolling in gold but still poverty-stricken

IN 1865, Jamsetji Nusserwanji Tata - a one-time opium trader and scion of a sparkling line of Parsee priests, Zoroastrians who had fled to western India from persecution in Iran - attended a lecture in Manchester given by Thomas Carlyle.

Carlyle, a cantankerous Scot, was known for his historical and philosophical essays, but he also put his mind to the budding field of political economy.


Report: China raises minimum wages

China's government has ordered minimum wages raised to help the poor cope with soaring food costs, a state news agency reported Friday.

Chinese leaders have been alarmed by a spike in inflation that saw the price of eggs rise 37.1 percent in May from their price in the same month last year. Meat and poultry were 26.5 percent more expensive in May compared to a year ago.

Debt, Deficits, Derivatives & Delusions - 06/17/07

China's trade surplus surges 73 percent

Just last month, China announced plans to buy $4.3 billion of U.S. technology as a way to show how serious it is about reducing the ballooning trade gap with the U.S.

So it must have come as a mixed blessing in Beijing to see that China's antigravity trade surplus soared again in May to the third-highest monthly level on record, according to government figures released Monday.

China's Chinalco to buy Peru Copper

Peru Copper Inc. said Monday it's agreed to a $792 million acquisition by government-owned mining giant Aluminum Corp. of China in a deal that takes out one of the few remaining independent copper-mining companies.

Vancouver-based Peru Copper, which has an agreement to develop copper deposits in the South American country's Toromocho project, said it has received a friendly takeover bid valuing the company at $6.22 a share (C$6.60) in cash.

BIS cautions over surge in takeover debt

The Bank for International Settlements has warned that the current takeover boom across the world is being funded by ever greater levels of debt, storing up trouble should rising inflation lead to a sharp rise in interest rates.

The bank's quarterly report, released today, said merger and acquisition activity had reached an unprecedented $1,100bn (£560bn) in the US over the first five months of this year, and $1,000bn in Europe.

Greenspan not worried Chinese will dump Treasuries

There is little reason to fear a wholesale pullout by China out of U.S. government bonds, former Federal Reserve Chairman Alan Greenspan said on Tuesday.

While expressing concerns about China's runaway growth rate and what he described as overvalued stocks, Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates.

Conspiracy or coincidence?

A bad day for stocks - and for gold, which closed Tuesday in New York at $647.10, down over $7 on the day and sharply down from its April lunge at the $700 level.

First a proprietary word: The Hulbert Gold Newsletter Sentiment Index, which represents the average gold market exposure among a subset of short-term gold-timing newsletters, stood at a reading of 21.4% on Tuesday night. That's not dramatically low - gold exposure can go well into negative territory. But it's a change from the over-enthusiasm (50%) that Mark Hulbert thought gold-timers were displaying earlier this month, when gold reached $671 See June 5 column

Bulls brave inflation and Zimbabwe's political turmoil

Notwithstanding the world's highest inflation rate - by far - and the world's fastest-contracting economy, the Zimbabwe Stock Exchange is booming, with share prices trebling in real terms in just 22 weeks.

Earnings and growth fundamentals cannot begin to explain the 4,500 per cent surge in the ZSE Industrials index since December 2006. Instead, analysts cite three main influences - the market is drowning in liquidity as the central bank prints money at a breakneck pace; the Zimbabwe dollar has collapsed in the parallel (unofficial) market from Z$2,900 to the US dollar at the start of the year to between Z$75,000 and Z$100,000 today, and the ZSE is more casino than market as investors throw increasingly worthless Zimbabwe dollars into penny stocks.

Swiss sales dash hopes of gold recovery

Switzerland's central bank is to sell a further 250 tonnes of gold, dashing hopes for a revival in depressed bullion prices after months of heavy selling by Spain and Belgium.

"This is quite significant, if you think that Britain's entire sales were 400 tonnes", said Ross Norman, director of the TheBullionDesk.com.

Markets could cope with doubling of US deficit

Global capital markets would be able to finance a near-doubling of the US current account deficit to $1,600bn a year by 2012, a McKinsey study published on Friday argues.

The study, by McKinsey Global Institute, breaks new ground in analysing the sources of funding for the deficit, and what a large dollar depreciation would mean for different industries and US trading partners.

Yields May Not Be A Threat Yet

With the rising yield of the 10-year Treasury note spooking the markets, it may be worth a historical look vs. the S&P 500. The chart (1962-2007) does show several periods where spikes in the 10-year yield coincided with corrections in the S&P 500 (see the thin black vertical lines). However, the vast majority of the 1982–2000 bull market in U.S. stocks took place during a period where the yield on the 10-year was higher than present level of 5.22% (see green box).

Debt, Deficits, Derivatives & Delusions - 06/05/07

Foreclosure Forecast To Top 2 Million Homes

Foreclosures will top 2 million homes in the wake of the nation's worst real estate crisis since the U.S. Savings and Loan scandal, according to the Housing Predictor forecast.

Gold matches two-week highs

Gold steadied on Monday after matching the previous session’s two-week highs, and analysts said the metal was likely to trade in a range in the near term.

Silver matched Friday’s five-week peak, while platinum and palladium rose to their highest levels in nearly two weeks before easing.

India trade deficit near double on crude costs

India’s trade deficit nearly doubled in April, the first month of the financial year, from a year ago as costs for imported oil jumped, the government said in a statement yesterday.

CBOT to launch credit default swap futures

The Chicago Board of Trade (CBOT) on Thursday said it plans to launch exchange-traded futures contracts on credit default swaps, in an effort to increase liquidity and transparency in the burgeoning credit derivative market.

Banks sell risky portions of CDOs to public pension funds

U.S. securities companies are hawking the riskiest portions of collateralized debt obligations to public pension funds.

At a sales presentation by Bear Stearns to 50 public pension fund managers in a Las Vegas hotel ballroom, Jean Fleischhacker, a Bear Stearns senior managing director, told fund managers they could get a 20 percent annual return from the bottom level of a collateralized debt obligation, or CDO.

Forcing fast RMB rise will be lose-lose situation

Clutching at yuan revaluation like a magic bullet, the U.S. continues to press China for a major appreciation of the renminbi to narrow the U.S. trade deficit with China.

The renminbi was a focus of the second round of the China-U.S. Strategic Economic Dialogue (SED) in Washington last month.

Foreclosures and subprime crisis still a threat to U.S. economy

Foreclosure filings in the United States were up 62 percent in April of 2007 from the previous year according to an Irvine, California-based RealtyTrac. This glum news was somewhat tempered by the fact that foreclosure activity dipped from March of 2007 by about 1 percent.

Statistics from RealtyTrac showed almost 148,000 filings in March such as default notices, auction sale notices, and bank repossessions. Slowdowns or declines in home values and problems with so-called subprime loans made to borrowers with shaky credit histories are widely credited with fueling the housing slump.

Japanese Interest Rates, China-US Dollar Peg Ensure Cheap Credit Flood

What is really going in the stock market? Is it a melt-up or the prelude to a melt down, or both? While Woolworths (ASX:WOW) pursues Coles (ASX:CGJ) and James Packer retreats from the media business and rushes into the gambling, business, we take a quick step back this Monday to take in the whole freakin’ financial circus.

Debt, Deficits, Derivatives & Delusions - 06/01/07

ATI Funding Says Dollar's Free Fall Creates Once in a Lifetime Opportunity for Overseas Countries

ATI Funding is able to finance foreign companies as well as foreign governments on equipment and construction loans originating from the USA without collateral up to 100% Financing . ATI Funding's new program will also finance US companies exporting US products at rates and conditions never seen before.

SHINE A LIGHT ON THE PLUNGE PROTECTION TEAM

Dear John: Although I admire your quest to get information on the Plunge Protection Team, I'm not sure why you are doing so. Seems to me, if you consider it OK - in the public interest, as you say, - for the PPT to intervene in some emergencies, then you essentially consider it OK to intervene at all times.

Because who determines what a real emergency is? Where do you draw the line? You either believe in a free market or you don't. I.G.

J.P. Morgan Settles Copper Lawsuit

J.P. Morgan Chase & Co. has settled a long-running antitrust lawsuit filed by copper companies who claimed the bank's predecessor conspired with a Japanese trading house to manipulate the copper market in the 1990s.

A trial had been scheduled to begin Tuesday in federal court in Madison but court officials said the companies settled late Friday. The details of the settlement are confidential.

Bill seeks new US approach to currency battles

Senate leaders are close to finalising legislation that they hope will lead to a reversal of long-standing US policy of opposing intervention in currency markets, according to people familiar with the matter.

The Senate bill is to be introduced in the next month and will put pressure on the US Treasury to intervene in global markets if currencies become fundamentally “misaligned”, people invol­ved in the process said.

Italians claim country run by Goldman Sachs

Italians grumble that Goldman Sachs runs their country, much as the Jesuits ran countries during the Counter-Reformation.

Premier Romano Prodi is an ex-Goldman Sachs man, as is central bank president Mario Draghi and the deputy treasury chief Massimo Tononi.

Funds attack banks’ aid for subprime borrowers

Hedge funds are attacking bank decisions that help delinquent US mortgage borrowers remain in their homes in a move that pits some of the country’s richest people against its least well-off.

The dispute centres on derivatives contracts that pay money to investors when bonds backed by subprime mortgage loans – extended to people with past credit problems – run into trouble. The $1,200bn (€890bn) US subprime mortgage bond market has been hit recently by rapidly growing defaults, and hedge funds have profited from the crisis by buying such derivatives.

Banks are lending to private equity at below the interest rate

UK banks are taking the unprecedented step of lending to the private equity and hedge fund sector at below the official UK interest rate.

Experts said it was a sign of City institutions' growing desperation to buy into the booming alternative investments market.

U.S. Bank Loan Risk Falls on First Day of Derivatives Index

A credit-default swap index based on the U.S. high-yield, high-risk loan market rose in its first day of trading as hedge funds and other investors used the contracts to bet on the ability of companies to repay their bank loans.

The LCDX index rose 0.63 to 100.63 as of 4 p.m. in New York, according to London-based Markit Group Ltd., the index administrator. An increase in the index suggests improvement in the perception of credit quality; a decrease signals the opposite.

More home owners are struggling to make house payments

Dawn and Scott Hentschel came within a sliver of losing their home after Scott, a construction worker, was laid off two months earlier than usual last fall.

The couple saw a legal notice in the newspaper and then a note in the mail that said their bank planned to foreclose on the two-bedroom, ranch-style house they bought two years ago.

Foreclosures still raging in Chicago area

Chicago-area foreclosures, which set a record last year, are projected to reach full-blown crisis levels in 2007.

Cook County is on pace to record at least 30,000 and as many as 36,000 foreclosure filings this year, according to Cook County Circuit Court Judge Dorothy Kinnaird, who presides over the Chancery Division, which handles foreclosures. That would mean a 35% to 62% increase from 2006, when 22,248 filings were easily the highest in county history after having risen 36% from the previous year. (The court combines both commercial and home foreclosures, but residential mortgages comprise the vast majority of its cases.)

Subprime loan crisis is hitting Vallejo hard

Vallejo is the Bay Area's version of ground zero for the subprime loan crisis.

A significant number of residents of the largely blue-collar city of 120,000 have taken out subprime loans -- expensive mortgages issued to people with poor credit.

Venezuela Local Debt Tumbles as Protests Extend to Fifth Day

Venezuelan government debt tumbled in local markets as people took to the streets for a fifth day to protest President Hugo Chavez's decision to pull the country's most-watched television network off the air.

Concern that protests will turn violent again led investors to sell dollar- and bolivar-denominated bonds in the local market and move money out of the country, traders said. Police have detained 182 people since May 27, the day that Chavez let the concession granted to Radio Caracas Television expire, Interior Minister Pedro Carreno said last night.

U.S: Subprime Fallout - How Significant is it for Credit Markets?

In a recent speech, Fed Chairman Bernanke made the point that the impact of subprime lending on the credit markets was not significant. This is a welcome note in contrast to many commentators that portray the world in black and white. Subprime lending is having an impact but not the disaster some commentators assert.

Subprime: Correction or Calamity?
How may we gauge the significance of the subprime correction? First, the ABX bond index (top graph) dropped precipitously from 93 in early January to 63 in late February but recently has moved back up to the 76 level. This suggests that the value of these subprime instruments has declined but that the decline is limited and not building momentum towards a total collapse.

Debt, Deficits, Derivatives & Delusions - 05/10/07

Zimbabwe: Country Reaches Official Hyperinflation Level

Official silence on Zimbabwe's latest inflation figures is being ascribed by Harare-based investment professionals to the authorities' embarrassment that the internationally accepted hyperinflation level has now been reached.

What is the real solution to America's trade deficit?
The US Congress seems more determined than ever to tighten the noose on China. The issue is trade policy – and the legislative response to America’s outsize bilateral trade deficit with China. The way things look today, bipartisan support for such efforts is deep enough to assure veto-proof passage of tough trade sanctions on a broad array of Chinese products shipped to the US. I continue to believe this could be a policy blunder of monumental proportions. By going after China, the US Congress is playing with fire.

Bank of America's Lewis Calls for Lending `Sanity'

Bank of America Corp. Chief Executive Officer Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.

``We are close to a time when we'll look back and say we did some stupid things,'' Lewis said, speaking at a lunch at the Swiss-American Chamber of Commerce in Zurich. ``We need a little more sanity in a period in which everyone feels invincible and thinks this is different.''

MONEY! MOOLA! CREDIT! CASH!

"Sarkozy must have won the elections," Elizabeth deduced.

Americans, meanwhile, are nowhere near elections, yet there too the politicians are hogging time on the big screen. People can't seem to take their eyes off of it - except to tune in to the Dow, of course, which hit yet another high on Friday.

Buffett On Derivatives: 'A Fool's Game'

Warren Buffett, the billionaire investor and long-time chairman of Berkshire Hathaway Inc. (BRK.A), is a man who speaks his mind. I'm not sure whether he's always been that way, or whether it is his exceptional wealth or his age -- or both -- that emboldens him to cut through Wall Street B.S. like a hot knife and expose the bloody truth about the foibles of modern finance.

Moneybox's Gross Goes Counterintuitive, Claims Bubbles Are Good

Every asset bubble leaves a new collection of bubble literature in its wake.

Some of the books go on to become classics: John Kenneth Galbraith's ``The Great Crash,'' for example. Others (``Dow 36,000'') are remembered for their curiosity value. Still others are just plain curious, as in, what was the author thinking?

The IRS, Amero And The Battleground For Liberty

"Taxation follows public debt, and in its train wretchedness and oppression." Thomas Jefferson to Samuel Kerchival, Monticello, 1816

I have been deluged with requests to cover IRS indictments or injunctions filed against individuals, i.e., last month the U.S. Department of Justice moved against Bob Schulz and his We the People Foundation; see court filing here. [Go to www.newswithviews.com to read from the original article, All the links from this article.] Many wonder why I didn't do my annual April 15th slave day column. So many wonder what has happened to the "tax movement." The IRS is systematically picking off individuals who fully understand the fraud being perpetrated against the American people and shipping them off to jail. Wonderful, decent Americans like Dr. Tom Clayton, is now serving a prison sentence because we have a federal judicial system that is so rotten, it shames the stench of rancid meat. Those who haven't done a lick of real research will shrug off that comment because ignorance is bliss and it's easier just to get down on your knees and welcome the chains of bondage and slavery than to stand up and fight for what's right. Reminds me of the theme song from an old western, "Rolling' rollin' rollin' Keep them cattle going. Raw-hide."

Living with derivatives: Riskier financial systems

The Reserve Bank of India (RBI) in its latest Annual Policy Statement has finally given the green signal for the introduction of credit derivative swaps, a kind of credit derivative instrument.

Ironically, the move comes just as there is renewed debate worldwide among regulators about the implications of the rapid growth of derivatives for the safety of the financial system. So how should the central bank proceed? Are there any takeaways, any research findings RBI could keep in mind as we enter what has so far been virtually uncharted territory?

Asia's real worry could be falling dollar

Although Asian finance ministers have just agreed on a new contingency measure to defend their currencies, their real concerns appear to be a plunge in the US dollar rather than a rise in their own units.

Debt, Deficit, Derivatives & Delusions - 05/04/07(Update 1)

Derivatives hint at weak April job growth

Investors believe the U.S. economy generated around 88,900 new jobs in April, according to the results of a derivatives auction.

Such a rise was smaller than that generally expected by Wall Street forecasters, who are looking for a somewhat larger 100,000 increase.

Paulson repeats China must let currency value rise

US Treasury Secretary Henry Paulson said on Thursday that China should quickly let its currency rise in value and let market forces play a greater role in recognition of its own economic might.

"It is quite important that their currency appreciate more rapidly," Paulson told several hundred students at Harvard University as he continued a series of discussions about the importance of keeping US-Chinese relations on an even keel.

India's trade deficit widens despite upward revision of export figures

India's trade deficit widened 40.5 per cent in the fiscal year ended March 31, this year to $56.74 billion despite an upward revision in export data for the April-February 2006-07 period.

While announcing the March 2007 foreign trade data, the commerce ministry has announced an upward revision of export data for April-February 2006-07 by about $3 billion.

Dick Cheney's Banker Grantham Sees World Bubble: William Pesek

You'd expect someone whom the famously dour Dick Cheney entrusts with millions of his dollars might have a gloomy view of the world. Jeremy Grantham does indeed.

``From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips -- it's bubble time,'' he writes in Grantham, Mayo, Van Otterloo & Co.'s latest quarterly letter titled ``The First Truly Global Bubble.''

U.S. Dollar Declining, Global Community Rising

Martin Weiss, Ph.D. examines the declining value of the dollar and how it directly affects the U.S. economy as well as the global community. In this issue of Money and Markets, Dr. Weiss discusses the plunge in the dollar verses the rising values of foreign currencies as well as the affects the dollar is having on the U.S. Housing industry.

According to Weiss, the U.S. dollar is sinking. No one is able to come to the rescue. Investors who fail to take protective action could get hurt badly. And those that act promptly stand to make some of the greatest fortunes in recent memory.

THE WORLD’S GREATEST UNREPORTED HYPERINFLATION

Zimbabwe has entered the hell of hyperinflation. Indeed, inflation in March rose by well over the 50% monthly threshold for qualifying as hyperinflation. The reporting of Zimbabwe’s travails invariably includes the standard reference to Weimar Germany’s 1922-23 hyperinflation, in which the monthly inflation rate peaked at 32,400%. The choice of this Weimar reference is somewhat curious. After all, the world’s greatest monthly hyperinflation rate was recorded in Hungary in July 1946, and it was 12 orders of magnitude greater than that of the peak month of the Weimar hyperinflation. As is the case with much economic and financial data, the Hungarian record has simply tumbled down what George Orwell called a “memory hole.”

Indian trade deficit nears US$57b as oil imports soar

India's trade deficit widened to nearly US$57 billion in the year ended March as a surge in the cost of imports led by oil offset a record year for exports, government data showed Tuesday.

Exports rose 23.9 percent to a record US$124.6 billion, in line with a target of US$125 billion for the year, while imports jumped 29.3 percent to US$181.4 billion led by oil, the government said.

Asia Draws on $2.7 Trillion of Reserves to Safeguard Currencies

Asian finance ministers will this week probably agree to pool part of the region's $2.7 trillion in foreign-exchange holdings to prevent a repeat of the crisis that depleted reserves ten years ago.

Loan derivatives poised for explosive growth

The market for derivatives of the risky corporate loans that are generally used to fund private equity buy-out deals is beginning to enjoy improving trading volumes and many are predicting that the next 12 months will see explosive growth.

Canadian Mint Introduces Wheel-Sized Pure Gold Coin

The Royal Canadian Mint today unveiled a gold coin that's as big as a car wheel and as thick as a hardcover novel, in a bid to help win business lost to global competitors.

The 100-kilogram (220-pound) coin, which is 99.999 percent pure gold, the largest and purest piece ever made, was shown to reporters for the first time today at the mint in Ottawa. While each coin has a face value of C$1 million ($900,000), the purity and quantity of the bullion gold they're made of makes them worth more than twice as much, based on current prices.

Debt, Deficits, Derivatives & Delusions - 04/23/07

Gold hits 11-month high, platinum jumps on dollar, ETF

Gold hit a new 11-month high on Friday and platinum rose to its highest in five months, buoyed by a weaker dollar and on hopes proposed exchange traded funds would boost demand for precious metals.

A rebound in Chinese stock markets also helped the bullion market, as it eased concerns that a possible hike in interest rates could hit demand in China.

At the risky end of finance

The use of credit derivatives has boomed and bemused. These new financial instruments have yet to face their biggest test

US Dollar Weakness: Who Wins, Who Loses

With the Euro hovering near its record highs and the British pound having breached the psychologically important 2.000 level, the extent of the US dollar’s weakness has finally been recognized. As we have seen in the past few months, the value of the US dollar is important not only for currency traders, but also for equity traders. It is hardly a coincidence that the US stock market hit an all time high around the same time that the US dollar reached multi decade lows against currencies like the British pound, New Zealand dollar and the Euro. The strength of those currencies has made US stocks attractive values for foreign investors and looking ahead, the value of the US dollar can be a useful tool for equity traders, especially those who are looking to buy or sell the shares of big US importers and exporters.


Financial Earnings

Earnings season provides us a quarterly glimpse into the workings of the Credit system. I was especially interested in the opportunity to examine how various institutions were responding to the subprime meltdown. Were lenders pulling back from home mortgage lending? Were they becoming more risk averse in the lending business generally? Any reverberations in securitizations or derivatives? Most important, are we seeing evidence of slowing financial sector growth – the lifeblood of market liquidity?

Global View: Money makes the world spin

Money is good, isn't it? The more, the better. Money makes the world go round. But sometimes it makes it spin giddily.

Why is the U.S. economy in difficulty? Why did the Argentine one collapse two years ago? It all has to do with tides of money.

Borrowing 'threatens UK economy'

Consumers must rein in their borrowing levels if a downturn in the UK economy is to be avoided, a report has warned.

The Ernst & Young Item Club's latest report says that the strong UK economy rests upon shaky foundations, with excessive levels of household debt posing a serious threat.

Paulson: Strong dollar in U.S. interest

U.S. Treasury Secretary Henry Paulson said on Friday he is "a big believer in a strong dollar" but reiterated that China's yuan currency needs to appreciate more against the greenback.

In a transcript of an interview with Public Broadcasting Service business commentator Charlie Rose airing on Friday night, Paulson said a strong dollar was good for the United States.

Paulson Says IMF Must Address Currency Manipulation

U.S. Treasury Secretary Henry Paulson stepped up his push for rule changes that would allow the International Monetary Fund to monitor and disclose cases of countries that manipulate their currencies, calling for action ``very soon.''

``Reform of the IMF's foreign-exchange surveillance is the linchpin'' of needed changes in the 63-year-old fund, Paulson said today in a statement to the IMF's semiannual gathering in Washington. ``We look forward to action in this important area very soon after these meetings.''

G7 mulls better use of oil money, China reserves

Saudi Arabia, United Arab Emirates, China, and Russia discussed with G7 nations how surpluses derived from oil sales should be invested and Beijing's plans to more actively manage its foreign reserves, a senior Japanese finance ministry official said late on Friday.

After the official meeting, the G7 -- Britain, Canada, France, Germany, Italy and Japan and the United States -- held a dinner session with some non-G7 nations, often dubbed as a G7 "outreach" meeting.

US Housing Market unraveling fast! Dollar breaking down!

Mike Larson writes I hate it when my dire forecasts come true. But my job is to call it like it is, and help you make sound investment decisions. So I keep my emotions out of the process, and focus on reality.

And when I look around me and see what's going on in the markets right now, I see two nasty scenarios coming to pass.

Today, I want to tell you why the worst is not yet over in housing, and why the dollar will continue to get crushed …

Doomsday for the Greenback

“Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.” Daniel Webster

The American people are in La-la land. If they had any idea of what the Federal Reserve was up to they’d be out on the streets waving fists and pitchforks. Instead, we go our business like nothing is wrong.

Are we really that stupid?

Paulson, Trichet Mum as Dollar Provides Economic Help

The dollar's slide may be coming at the right time for U.S. Treasury Secretary Henry Paulson and European Central Bank President Jean-Claude Trichet.

American exports, made more competitive by a weaker currency, are helping prop up economic growth, offsetting slumps in housing and corporate spending. The euro's 2.5 percent gain since the end of January, meanwhile, should help Trichet combat inflation, complementing the ECB's interest-rate increases.

US-China trade tensions undermine dollar

The dollar fell sharply Tuesday as trade tensions between the US and China intensified. The fall reversed the gains prompted by Friday’s stronger-than-expected non-farm payrolls data.

China Tuesday declined an invitation to take part in the G7 meeting to be held in Washington this weekend. This followed earlier comments from the country’s commerce ministry that it was “strongly displeased” that the US had complained to the World Trade Organisation over what was described as Beijing’s failure to protect intellectual property rights.

Foreign Bonds to Top Dollar Denomination in 2007, Lehman Says

Bonds sold in non-U.S. currencies will surpass dollar-denominated debt this year for the first time since at least 1995 as foreign governments and corporations boost local issuance, Lehman Brothers Holdings Inc. predicts.

About $4.9 trillion of bonds sold worldwide this year will be in currencies other than U.S. dollars, while $4.8 trillion will be sold in dollars, New York-based Lehman said in a report released today. It would be the first year dollar debt trailed foreign issues since Lehman began tracking the data in 1995.

Gold poised for record run

Gold prices could exceed last year’s 26 year high of $730 an ounce within the next 12 months due to a weaker dollar, rising geopolitical tensions and an investment led rally, according to the annual survey by GFMS, the metals consultancy.

GFMS said given the general favourable backdrop and the still low level of participation form institutional and private inventors in most countries, there remains considerable upside potential for gold even as the current rally enters its seventh year.

Barclays Says Yen Set for Worst Fiscal First Quarter Since 1989

The yen will slump 5 percent this quarter, the worst start to a fiscal year since 1989, as Japanese free up more capital for investment overseas, said Toru Umemoto, chief foreign-exchange strategist at Barclays Capital.

Is the Dollar You Work For Worthless?

It may seem that the escalating prices of homes has made many of us rethink exactly what we’re working for.

For those of you who are already independently wealthy, you can tune out now.

For the rest of us, this is critical to our understanding of the housing/credit bubble, if we are to understand it at all.

Dollar Drops This Week as U.S. Applies New Tariffs to China

The dollar dropped against the euro and the yen this week after the U.S. added tariffs on imports from China, fueling concern the levies will reduce trade flow with the world's biggest holder of foreign reserves.

The U.S. currency also fell against the yen on speculation mounting tension in the Mideast will lead investors to reduce holdings in riskier assets financed by loans in Japan. The tariff and Mideast concern yesterday offset U.S. reports showing signs of a stronger economy and accelerating inflation.

The Armageddon Gang

There are those who fret that current troubles in real estate will lead to an economic slowdown, maybe a recession. Then there's Peter Schiff. "Our standard of living is going to decline," the Connecticut stockbroker confidently declares. "There's no way around it, and it has just started."

Schiff owns Euro Pacific Capital, a smallish firm that specializes in moving clients' money into nondollar assets like foreign stocks and bonds. Over the past couple of years, he has become a regular, hectoring presence on cable-TV business shows--on CNBC they call him "Dr. Doom." Now he has a book out, ominously titled Crash Proof: How to Profit from the Coming Economic Collapse.

Financial Armageddon

Crash Proof

Radioactive Money

The Islamic Republic of Iran has just issued a new 50,000 rial banknote. An eye-catching feature of the banknote is the atomic symbol on its reverse side, an orange-hued representation of six electrons in orbit. Money has been "backed" by a wide range of things, from silver and gold, to central banks, to assertions of raw power. This atomic symbol represents quite an escalation in this regard.

Asia states warned on danger of reserves

Asia’s developing economies are fuelling asset bubbles with their huge foreign currency reserves and could put them to better use by retiring debt or buying higher-yielding investments, the Asian Development Bank said on Tuesday.

Ifzal Ali, ADB chief economist, said the current level of reserves held by Asian developing economies – $2,280bn – was excessive.

Yen Rallies On Rising Risk Aversion; Dollar Falls After Data

The yen rallied Wednesday, touching a more than one-week high against the dollar, as investors reduced bets on riskier assets financed by cheap borrowing in the Japanese currency amid concerns over Iran and the U.S. housing market.

The dollar extended its losses after a government report showed orders for durable goods rose less than forecast last month. The disappointing reading comes after reports released earlier this week showed a larger-than-expected drop in U.S. consumer confidence and an unexpected plunge in sales of new homes.

Fed Jeopardizes Dollar as It Neglects Its Mandate

The U.S. dollar collapsed to two-year lows against the euro as the Federal Reserve (Fed) takes its focus away from fighting inflation. The Fed has a dual mandate: price stability as well as full employment. With unemployment hovering near historic lows, why does the Fed neglect its mandate to fight inflation, thereby jeopardizing the dollar?

Dollar Drops Against Euro as U.S. Consumer Confidence Declines

The dollar fell against the euro and yen as a private report showed consumer confidence in the U.S. dropped this month, increasing the likelihood of a cut in borrowing costs by the Federal Reserve.

The U.S. currency also weakened as a private survey showed the price of homes in 20 U.S. metropolitan areas fell in January for the first time in at least six years and a Federal Reserve report showed a regional decline in manufacturing this month. U.S. consumer confidence declined in March from a five-year high as concern over mortgage delinquencies mounted.

Priest speaks against Federal Reserve (year - 1930s)

Interesting clip of Father Charles Coughlin Speaks against Federal Reserve banking cartel

Has the Dollar met with destiny?

To many observers a strong dollar has always been there, is something they have grown up with and that its continuing strength, no matter what happens, is nothing less than a fait a complis. We are concerned by what we sense is a dangerously complacent attitude (as revealed in the chart below) and, in the wake of the Federal Reserve’s decision to adopt a de facto neutral bias to monetary policy, by what we see as a move which potentially triggers the dollar’s date with destiny.

Dollar Declines As Housing Outlook Worsens

The loose thread from last week’s solidly packed economic calendar, Monday’s new home sales report tipped the scales for fundamentalists torn between strong lagging indicators and a distinct cooling in more timely reports.

After the worse-than-expected number hit the wires, the dollar cut its two session advance short with big moves across the majors. For EURUSD, the data was met with a 70-point rally to a 1.3350 high that was 100 points off of overnight lows. In a more intense dollar move, USDCHF slid 85 points in 30 minutes to test key support around 1.2120/10. Making a technical move of its own, GBPUSD extended a rally that began in the London session for a 140-point climb to mark a double top with Thursday’s high at 1.9725. Finally, USDJPY continues to carve out a convincing ascending triangle following a test high around 118.45 and a subsequent turn around 117.65.

Splish, Splash - The Dollar's Taking a Bath!

This past week saw the dollar flail like the new kid in swimming class, accidentally in over his head. Remember him? Splish...splash...splosh....gurgle... He's up! He's down! Finally, the instructor takes pity and hauls him closer into the shallow end. For a time, despite significant rescue attempts, it seemed as though the dollar might actually be allowed to sail under 82.00. Then, just like a clock, on Friday the dollar straightened out and held the line....at 83.00. Precisely, too - not 82.99 and not 83.01. Precisely, exactly 83.00 was its close. What a coincidence! I must be psychotic. Or is that psychic? I keep confusing the two.

Ignoring foreign debt puts dollar in peril

THE plunge in the Shanghai share market three weeks ago now seems a distant memory, but the extraordinary gyrations it caused in the value of the Australian dollar expose a fault line beneath our economic prosperity.

The growth of foreign debt is almost ignored in the regular parade of economic statistics, but new research from the Bank for International Settlements shows it has made the Australian dollar more vulnerable to capital flight than almost any other currency in the world. Only the Turkish lira is more exposed.

IMF to urge further depreciation in dollar-paper

The International Monetary Fund will say further depreciation by the U.S. dollar is needed to help correct global imbalances in its latest World Economic Outlook (WEO), Germany's Sueddeutsche Zeitung said on Saturday.

Quoting from a draft of the WEO, the paper said the Washington-based fund argued "extraordinarily aggressively" for a correction in exchange rates, above all so as to reduce the massive U.S. current account deficit.

Iran gets 60 pct of oil income in non-USD

Iran, embroiled in a nuclear row with the United States, is asking more clients to pay for oil in currencies other than the dollar and 60 percent of its crude income is in other units, an official said on Thursday.

Hojjatollah Ghanimifard, international affairs director of state-owned National Iranian Oil Company (NIOC), told Reuters almost all of Iran's European clients and some of its Asian customers had accepted making payments in non-dollar currencies.

The US dollar is losing ground against some but not all currencies

The US dollar is losing ground against some but not all currencies, and as the smaller ones are leading many have not really registered the moves. Monday the Slovakian koruna was revalued against the Euro and it moved to a mere 24.585 to the dollar, its strongest ever; Tuesday the Australian dollar reached $0.8093, above pivotal resistance at $0.8000; likewise the Kiwi at $0.7159 a new high for this year. Thursday Canada (C$1.1530) and Cable ($1.9729) were dragged along by these and Wednesday’s Euro move (see below). Equity indices rallied this week and have now recovered half or more of February’s sudden losses, as they believe that were the Fed to ease sooner rather than later business would benefit. Commodities generally have a bid tone but are not racing away or grabbing headlines. ICE Brent futures at $63.67 (as Iran holds British Navy personnel) posted a new high this year; CBOT Oats at 296 cents per bushel matching the 1996 high and in turn about the most expensive in thirty years; NYMEX Cocoa at $1,919 per metric tonne, highest since June 2003. Interest rates held in tight ranges as many continue to ponder what is or is not needed in different countries.

No Debt = No Money

How money is created out of thin air.

Russia struggles to kick dollar habit

President Vladimir Putin on Wednesday watered down plans to ban officials from using the word "dollar" after Kremlin bosses, and Putin himself, found it hard to kick their habit and use "roubles" instead.

Russian deputies last year gave initial approval to a draft law that would have fined government ministers for using the words "dollars" or "euro" when "roubles" could be used.

Bernanke Sez

China to stop accumulating foreign reserves - Zhou

China will stop stockpiling its massive foreign exchange reserves, China's central bank governor Zhou Xiaochuan said in an interview published on Tuesday.

"Many people say that foreign exchange reserves in China are (already) large enough," Zhou told the Emerging Markets magazine, whose latest issue was released at a meeting of the Inter-American Development Bank in Guatemala.

Dollar May Decline on Bets Fed Will Shift to Reflect Housing

The dollar may extend its drop versus the yen on bets the Federal Reserve will change its statement to reflect a deteriorating housing market.

Some traders said the central bank may remove language from its statement saying housing has stabilized. The dollar fell yesterday against the yen on expectation a weakening housing market may lead the Fed to reduce borrowing costs sooner. All 94 of the economists surveyed by Bloomberg expect policy makers today to maintain the benchmark lending rate at 5.25 percent.

Dollar Slides to 3-Month Low on Ebbing U.S. Consumer Confidence

The dollar declined to the weakest this year against the euro as a U.S. report today will probably show confidence among consumers fell to the lowest in six months, raising concern economic growth will slow.

The U.S. currency headed for the biggest weekly loss since early December as the yield premium investors earn on two-year Treasuries over similar-maturity German bunds this week fell to the smallest in more than two years. It has dropped against 12 of the world's 16 most-actively traded currencies this week.

Dollar Falls Against Major Currencies

The dollar fell against the other major currencies Monday as traders no longer sought the U.S. currency as a safe investment after the stock market turmoil of recent weeks.

The 13-nation euro bought $1.3187 in afternoon trading in New York, up from $1.3115 on Friday. The British pound inched up to $1.9318 from $1.9316.

China confirms new agency to manage FX reserves

China is setting up a new investment agency to seek higher returns on its foreign currency reserves of more than $1 trillion, the largest stockpile in the world, Finance Minister Jin Renqing said on Friday.

It was the first official confirmation of China's plans, which Premier Wen Jiabao foreshadowed in January by saying Beijing would actively explore new ways of using the reserves.

Berkshire Hathaway Annual Report

We’ve made large indirect currency profits as well, though I’ve never tallied the precise amount.For example, in 2002-2003 we spent about $82 million buying – of all things – Enron bonds, some ofwhich were denominated in Euros. Already we’ve received distributions of $179 million from these bonds,and our remaining stake is worth $173 million. That means our overall gain is $270 million, part of which came from the appreciation of the Euro that took place after our bond purchase.

When we first began making foreign exchange purchases, interest-rate differentials between the U.S. and most foreign countries favored a direct currency position. But that spread turned negative in 2005. We therefore looked for other ways to gain foreign-currency exposure, such as the ownership of foreign equities or of U.S. stocks with major earnings abroad. The currency factor, we should emphasize, is not dominant in our selection of equities, but is merely one of many considerations.

As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.) Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of
what we owned in order to consume more than we produced.

The U.S. can do a lot of this because we are an extraordinarily rich country that has behaved responsibly in the past. The world is therefore willing to accept our bonds, real estate, stocks and businesses. And we have a vast store of these to hand over.

These transfers will have consequences, however. Already the prediction I made last year about one fall-out from our spending binge has come true: The “investment income” account of our country – positive in every previous year since 1915 – turned negative in 2006. Foreigners now earn more on their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience “reverse compounding” as we pay ever-increasing amounts of interest on interest.

I want to emphasize that even though our course is unwise, Americans will live better ten or twenty years from now than they do today. Per-capita wealth will increase. But our citizens will also be forced every year to ship a significant portion of their current production abroad merely to service the cost of our huge debtor position. It won’t be pleasant to work part of each day to pay for the over-consumption 16 of your ancestors. I believe that at some point in the future U.S. workers and voters will find this annual “tribute” so onerous that there will be a severe political backlash. How that will play out in markets is impossible to predict – but to expect a “soft landing” seems like wishful thinking.

Toyota Venezuela to halt March ops on currency woes

Toyota's Venezuela unit will halt production for 15 days beginning March 1 because the government has not sold it enough dollars to import the components it needs, a company executive told Reuters.

The government of Venezuelan President Hugo Chavez has maintained strict currency controls since 2003 as part of his self-styled socialist revolution that has broadened government involvement in all aspects of the OPEC nation's economy.

Dollar, euro plunge against the yen

The dollar suffered its sharpest intraday fall for a single global session in over a year versus the yen Tuesday as investors unwound carry trade positions against a background of heightened risk aversion.

The dollar's plunge focused on the Japanese currency, with only moderate losses against the euro. At one point, the dollar had fallen more than three yen from day-earlier levels to bottom out at 117.50 yen, but recovered part of those losses as U.S. trading wound down.

Bullish about bullion

Soaring gold prices have led to a new trend among buyers, who are now buying more bullion in the form of coins.

Malaysian Indian Goldsmith and Jewellers Association adviser N.P. Raman said, “Many regular buyers are now beginning to look at gold purely as a financial asset, adding to their investment portfolio.

“Many women now choose to buy gold coins or even bars as investment, instead of jewellery as jewellery adds 25% to 30 % to the cost, to cover craftsmanship,” he said.

Ctrl Bks Raise Euro, Cut Dollar Share Of Reserves -CBP Survey

The euro made small gains as a reserve currency at the expense of the U.S. dollar in the final months of 2006, while gold is set to make a comeback as a reserve asset, a survey by Central Banking Publications showed Monday.

Although respondents to the confidential survey don't appear to have included the People's Bank of China or the Bank of Japan - which hold the world's largest foreign exchange reserves - they do account for 30% of total reserves held worldwide, or $1.5 trillion, CBP said. Of the 47 central banks that responded by December to the survey, 21 of them, managing reservesof $630 billion, said they had increased the share of their reserves held as euros, and 15 of thosesaid they had done so at the expense of the dollar.

Mexico Peso Bonds Plunge on Central Bank Interest Rate Concerns

Mexico's peso-denominated bonds plunged, pushing yields up the most in two months, after the central bank said it is prepared to raise interest rates to stem inflation.

Bonds of all maturities and the currency tumbled after Banco de Mexico said there is a ``risk'' inflation may accelerate. Increases in the inflation rate may boost companies' and workers' inflation expectations, the bank said. Quickening inflation subtracts from the value of a bond's fixed payments.

Sovereign Risk: Will Venezuela Default on Its Debt?

Perhaps the biggest threat to Hugo Chávez' continued rule is internal, namely the rapidly deteriorating Venezuelan economy. But this trend holds potentially ominous implications for domestic and foreign investors who currently hold Venezuelan debt instruments.

When oil prices spiked last year to more than $70 per barrel, the political currency of Hugo Chávez soared even as the nation's currency, the Bolivar, sank to all times lows vs. the dollar. Despite the vast increase in Venezuela's export income last year, Chávez has managed to alienate foreign investors and accelerate both inflation and the rapid deterioration in living standards among his country's poor - once his most powerful and reliable base of political support.

Bonds are Forecasting a 2007 Recession

We believe the intermediate-term risks in Bonds have moved away from a decline to a rise in prices, and to declining long-term interest rates. This is frightening, as it means we are about to enter another recession, one that could be deeper than we have seen in a long time. Why do we see this as an increasing risk?

Dollar flat as market consolidates

The dollar recovered from session lows against other major currencies Friday, consolidating after sliding to multi-week lows in the prior session, but still finishing the week sharply lower.

The U.S. currency briefly dropped after government reports showed relatively benign inflation and a sharp fall in housing starts. A weaker-than-expected reading on consumer sentiment had little impact on the market.

"Traders take profits ahead of the long holiday weekend in the U.S. in observation of President's Day Holiday," said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York.

The World Can Halt Bush’s Crimes by Dumping the Dollar

What would be the consequences of a US or Israeli attack on Iran’s nuclear energy sites?

At the 2006 Perdana Global Peace Forum, Australian medical scientist Dr. Helen Caldicott provided an authoritative analysis of the devastating impact on human life that would result from the radiation release from such an attack.

Dr. Caldicott described the catastrophic deaths that would result from a conventional attack on nuclear facilities and the long-term increase in cancer deaths from the radiation release.

Dollar fell against the euro and yen after U.S. capital flow data

The dollar dropped the most in almost eight months on Thursday, to a one-month low against the yen after U.S. data showed the net outflow from U.S. capital markets in December was $11 billion, not nearly enough to finance that month's trade deficit. The dollar fell against the euro as well, but recovered some ground after Federal Reserve Chairman Ben Bernanke told Congress that the economy may be stronger than some believe. A surprise decline in U.S. industrial output last month, a spike in U.S. jobless claims last week and a sharp slide in U.S. mid-Atlantic region manufacturing activity also kept overall sentiment on the dollar negative.

Bank of Korea weighs overseas investments

South Korea's central bank said yesterday it was considering investing part of the nation's huge international reserves in overseas stocks, and especially the blue chips of advanced countries, in an effort to gain higher returns.

The announcement comes as the Bank of Korea faces increasing calls for better management of $240bn (EU185bn, £122bn) in foreign exchange reserves, the world's fifth largest, after nine years of growth.

The US Dollar will Crash during 2007 due to $8.6 trillion debt

“Whatever future developments may prove to be, my best guess is that the US will continue to maintain a facade of Constitutional government and drift along until financial bankruptcy overtakes it.” Chalmers Johnson, “Empire V. Democracy: Why Nemesis is at our Door”

Australian Dollar Advances as Commodities, Gold Prices Increase

The Australian dollar advanced for a sixth day, tracking a rise in the price of commodities the nation exports, such as gold.

The currency headed for the biggest weekly gain in two months after the Reuters/Jefferies CRB index of 19 commodities jumped 1.5 percent to the highest in a month. Raw material exports add about 14 percent to economic growth. Australia's dollar rose above 78 U.S. cents yesterday for the first time in two weeks after the unemployment rate fell to a 31-year low.

ZERO DEGREES OF DOLLAR SEPARATION

The last several months have provided a keen lesson in currency defense by a nation which has been written off in many circles as owning a dead and hopeless currency. Some key inter-related feedback loops have been on my radar, each vitally important and changing, which underscore in my viewpoint how major markets are inseparable, each inter-connected, and integrally important if the USDollar is to avoid a much deserved crash. A quip of mine at a conference one year ago centered on my claim that the USDollar was backed by the full force of the US Military. While true in some respect, the actual defense day to day entails a green triangle not to be confused by the iron triangle which fortifies the Pentagon funding, namely the US Congress, the defense contractors, and the lobbyists when grease the funding wheels. Complementing this death grip which has contributed over decades to do irreparable harm to the USDollar, the green triangle consists of holding down gold in a straight jacket, and holding down crude oil in a giant clamp. Never stated is its purpose to reinforce the USDollar from its implied inverse leverage device as hedge funds run for cover. The greenback and gold shine in opposite directions. The greenback and crude oil flow in opposite directions. Goldman Sachs has been at the controls on most of the master machinery.

GLOBAL MARKETS-US bonds, dollar gain after jobs data, gold falls

U.S. Treasury bond prices rose on Friday after government data showed moderate job creation, suggesting the Federal Reserve will keep interest rates steady for some time.

The dollar gained as investors focused on upward revisions in the jobs numbers for previous months, while U.S. stocks ended mixed.

The Labor Department's nonfarm payrolls report showed that the U.S. economy created 111,000 new jobs in January -- below forecasts for 149,000. But the government also revised upward estimates of job growth in previous month.

Blanchard & Co. research note: IMF can't scare gold anymore

Gold is breaking out of a range between $640-650. We should see prices continue rising toward to the $680 range with little resistance and then need a new period of consolidation before setting off to challenge the May 2006 highs of $730.

So the big news out yesterday after the FOMC non-event meeting was the recommendation from the International Monetary Fund's panel of distinguished current and former central bankers calling for the IMF to sell 400 tonnes of gold to help plug the IMF's operating budget deficits. There are a number of reasons why this probably won't happen, but should it still come to pass, it will give the gold market yet another bullish signal on prices.

Establish Federal Capital Budget for Infrastructure

The political evidence of the November election's results, and the nature of the campaigns in which the new Members were elected, is that the American people want not only an end to a war policy; they also want an end to globalization and de-industrialization of their economy by "free trade," low-wage outsourcing, and deregulation. This is a strong message of the "New Politics" of the 110th Congress. It is also an urgent necessity, to forestall a severe plunge of the dollar and financial collapse of the U.S. economy.

Gold and silver rally on fund buying, weakening dollar

Fund buying and a softer U.S. dollar enabled gold and silver futures to rally Wednesday.

April gold settled up $7.70 at $657.90 a troy ounce on the New York Mercantile Exchange. March silver rose 19.5 cents to $13.57, the highest level in six weeks.

Falling Yen sparks carry trade alert

The yen hit a four-year low against the US dollar on Monday, intensifying fears that the rising level of currency-based "carry trades" by hedge fund investors could jolt markets if these positions were suddenly unwound.

The Japanese currency's sharp fall also prompted European finance ministers to voice concern about its weakness.

Dollar flat as market awaits rate decision

The dollar traded little changed against other major currencies Tuesday, after a report showed U.S. consumer confidence improved this month and as traders awaited an interest-rate announcement from the Federal Reserve.

The Federal Open Market Committee, the Fed's policy-setting panel, started its two-day interest-rate meeting, and is widely expected to leave overnight borrowing costs unchanged at 5.25% on Wednesday. Traders will be closely watching the accompanying statement for clues on future rate moves.