Wednesday, December 30, 2009

Jay Taylor: Turning Hard Times Into Good Times

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Japan: Slowly Going Broke

We reported that the US government would need to roll over $2.5 trillion worth of debt next year. We probably erred. The number was right, but it was meant to be over the next two years. During the next two years also, worldwide, banks need to roll over $7 trillion. Whether it is over one year or two years, we’re talking big money.

Most people who bother to think about it are coming to the conclusion that this is very inflationary…and very bullish for gold. They think the Fed will need to “monetize the debt” directly, or indirectly. One way or another, they say, the central bank will have to increase the volume of money so that the government can finance its deficits.

Paul Krugman, Nobel Prize winner in economics, suggested that the Fed add another $2 trillion to the nation’s monetary base, partly to accommodate federal borrowing…and, he believes, to stimulate employment. (more)

Treasuries Set for Worst Year Since 1978 as U.S. Steps Up Sales

Treasuries headed for the worst year since at least 1978, as the U.S. stepped up debt sales to help spur growth in an economy recovering from its deepest recession in six decades.

U.S. bonds were little changed on the day before today’s sale of $32 billion in seven-year debt, the last of three auctions this week totaling $118 billion. The Treasury sold a record-tying $42 billion of five-year securities yesterday and $44 billion in two-year notes on Dec. 28. U.S. government securities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes, the worst annual performance since at least 1978, when Merrill began collecting the data.

“This is the largest expansion of fiscal deficit in a single year other than in wartime and depression,” prompting the large loss in Treasuries, said Christian Carrillo, a senior interest-rate strategist at Societe Generale SA in Tokyo. “There is genuine expectation of economic recovery and eventual monetary tightening priced in. It could have been a lot worse.” (more)

Investors Swamp Exchange Funds Bullish on Dollar

Strong demand for instruments that take bullish positions on the dollar prompted one such exchange-traded fund to be halted after it recently ran out of shares.

DB Commodity Services, which offers the U.S. Dollar Index Bullish Fund, said in a prepared statement that it had asked the Securities and Exchange Commission for permission to create 240 million additional shares of UUP in order "to manage exceptional investor demand."

The fund faced a similar situation in November when trading of the fund was halted as it filed to create 100 million new shares.

"With UUP, we've just seen such a flood of assets that this is now the second time this happened in two months," Bradley Kay, an ETF analyst at Morningstar told The Wall Street Journal. (more)

How China Might Buy More Gold Than America Owns

China has a long way to go before coming anywhere near America's gold reserves.

Yet apparently it's on their to-do list and a must, at least according to the country's China Gold Association.

Commodity Online: In 1981, China had 395 tonnes of gold holdings; it increased to 500.8 tonnes in 2001, and 600 tonnes in 2002. In April 2009, China officially announced that it has increased its gold holdings to 1054 tonnes. Since then, Chinese officials and People’s Bank of China have been meticulously chalking out plans to build up gold reserves in the next one decade.

According to Zhang of the China Gold Association (CGA), India’s decision to buy IMF gold has been the real boost for China’s recent spirited moves to step up gold reserves.

“In view of the declining US dollar value, it is paramount that China steps up gold reserves. How to do this is the only question that China is debating these days. The possible steps include opening up new gold mines, aggressively going for gold mining, buying gold from the open market etc. All said and done, it is imperative that China needs to buy more gold,” Zhang points out.

Free Republic: “We recommend that China’s gold reserve should reach 6000 tons in 3~5 years, and probably reach as high as 10,000 tons in 8~10 years,” according to Ji Xiaonan on November 28 at the third Chinese Industry Stability Forum. He is the head of the supervisory committee at the state-owned Assets Supervision and Administration Commission.

Why we must nationalize the Federal Reserve

Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the privately held Federal Reserve. Banks create the principal but not the interest to service their loans. To obtain the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.

Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as "derivatives," which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures. (more)

Fannie / Freddie - What Does Treasury Know?

On Christmas Eve one would think you could have a nice evening with your family. Little did I know what Timmy Geithner had up his sleeve:

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.

I see. But I thought housing was getting better? That's what I heard on CNBS Tuesday when existing home sales came in "above expectations."

But then Wednesday came around and, well, new homes? They're just not selling. (more)

Peter Schiff On The Glenn Beck Show: Will Gov't Get Out Of The Way In 2010?