Dec 1, 2009
More: China - a 10 fold increase in gold holdings?
More: US Mint Suspends 2009 Gold Eagle Coin Sales
More: Gold Beats All Reserve Currencies
More: Market Watch: The New Gold Bugs
More: New gold rush may soon test gold at $1,300
More: The big factor that guarantees higher gold prices
Update: Gold Hits Record High as Investors Bet on More Gains
By William Hardy New York Times Wednesday, December 2, 2009
Gold hit record highs at $1,216.75 an ounce in Europe on Wednesday as investors bet on higher prices, with funds lengthening positions due to expectations of a fresh leg of dollar weakness and more central bank buying.
"Somali pirates have seized an oil-laden supertanker en route from Saudi Arabia to the US in a move that has underlined the growing reach and ambition of their operations. The Maran Centaurus, one of the largest vessels ever hijacked and carrying an estimated $20m (£12m) in crude oil, was last night headed for the coast of lawless Somalia, with a Greek frigate in close attendance. The 300,0000-ton Greek-owned vessel was taken 700 miles outside the territorial waters of the Horn of Africa nation, near the Seychelles in the Indian Ocean, an area increasingly targeted for long-range strikes by pirate groups." (11/30/09)
"The Supreme Court did all it could Monday to lock up forever some incendiary photos that show U.S. soldiers abusing foreign prisoners in Iraq and Afghanistan. Yielding to Congress and the White House, justices took the expected but formal step of reversing a lower court's order that the pictures be released. Using its budget powers, Congress already had moved to keep the photos secret." (11/30/09)
More: Obama Regime Prevents Millions of Pages of Military and Intelligence Documents from Being Declassified; Had Been Scheduled for Release by the End of the Year
And more: Torture continues at US prisons in Afghanistan
The Record of Bergen County reported Sunday that Hal Turner received thousands of dollars from the FBI to report on neo-Nazis and white supremacist groups and was sent undercover to Brazil. Turner also claims the FBI coached him to make racist, anti-Semitic and other threatening statements on his radio show, but the newspaper also found many federal officials were concerned that his audience might follow up on his violence rhetoric. Read all
By Bill Van Auken, WSWS 01 Dec 2009
Sunday’s national elections in Honduras were marked by systematic repression against opponents of the country’s coup regime and reports of record abstention. Nonetheless, the Obama administration in Washington hailed the results as a "very important step forward for Honduras" and a “legitimate way out” of the crisis that began with the military overthrow of the country’s elected President Manuel Zelaya on June 28. The election was held just a day after the coup’s five-month mark, with Zelaya still trapped in the Brazilian Embassy in Tegucigalpa, where he sought refuge two months ago after staging a clandestine return to Honduras. Read all
It's one of those numbers that's so unbelievable you have to actually think about it for a while... Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?
...When governments go bankrupt it's called "a default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists - Alan Greenspan and Pablo Guidotti - published the secret formula in a 1999 academic paper. That's why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."
The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world's largest holder). That's 16,267,000 pounds. At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.
According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months - an amount far larger than our reserves.
Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.
So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.
So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.
One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.
I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings - nearly word for word - in its paper today. (They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.)
Crux Note: The S&A Digest comes free with a subscription to Porter Stansberry's Investment Advisory. Porter says his latest issue is the most important he's ever written. If you don't act right now to protect yourself from the dollar, he thinks the odds are very high you'll be wiped out over the next 12 months. To learn more, click here. Source
More: Dollar Set To Surprise
The dollar ($) is set to surprise the few remaining speculators that think it can't happen by falling further straight away, possibly taking it down to test all time lows at 71. Here, we are talking about the possibility of a more disorderly decline ...
More: Peter Schiff: Wealth Shifting Out of US and the Dollar
More: Goldman Staff Packing Pistols to Defend Against Peasants
More: Madmen, Gamblers, Alcoholics, the US Dollar and Gold
More: Zombie Capitalism: Bernanke "Marching Ignorantly Forward"
More: Inflating Away the Debt? Not Really.
More: Budget Deficit Blowback
Most Popular Posts of the Week:
- UKIP's Godfrey Bloom Blasts Fractional Reserve Lending as Fraud; Says Central Bankers Should be Tried for Financial Crimes
- The Prison System Expands at Frightening Pace Following Declaration of War on Drugs
- Black Eagle Fund, the Shadow CIA and the relationship to Sept. 11th
- Michel Chossudovsky: The Anti-Globalization Movement and the World
- An Even Bigger Scandal: Why Are IRS Audits Being Used To Punish Obama’s Political Enemies?
- THE SATURDAY ESSAY:What else are they manipulating?
- THE COLLAPSE OF FIAT MONEY BY A FALLING ENERGY SUPPLY
- Social Mood Darkens in Europe, Especially France, as Eurozone Economy in Freefall
- Europe's EUR 500 Billion Ticking NPLTime Bomb
- Just Say Non To The New "Sick Man Of Europe" - Support For EU Plunges In France And Most European Countries