Hmmm

A walk around the fringes of finance

THOMAS JEFFERSON

THINGS THAT MAKE YOU GO

I wish it were possible to obtain a single amendment to our Constitution Taking from the federal government the power of borrowing
Nothing but widespread suffering will produce any effect on Congress
Nicholas Biddle

You thought you had me in your pocket, But I never could be bought; I avoided traps you set out; Too many have been caught. Be it love or be it money, Its the bait you must resist
Chicago, Manipulation

25 June 2011

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few weeks ago, we celebrated Vesak Day here in Singapore and, as I drove to the office at the usual time, the roads were deserted as the population of this island nation stayed home in their droves. Singaporeans take their public holidays SERIOUSLY, I can tell you. My drive to work, on a normal day, takes about 20 minutes. The traffic is usually fairly heavy in places, but overall, apart from the bottlenecks around the various schools I pass where MPVs tip out bleary-eyed students in their hundreds just before 7am, the only hold-ups are the traffic lights. I would estimate that I pass through around 15 sets of lights each morning but on that particular morning, something rather extraordinary happened. Maybe it was the exact time I left home, maybe it was the dearth of traffic on the roads, maybe it was mysterious powers at work, I have no idea, but as I drove in to the CBD, I was greeted with green light after green light after green light. Each set of lights I approached either glowed a welcoming shade of green, changed to green as I approached or remained green until I was past the point of no return, enabling me to drive through while what traffic there was behind me came to a standstill and shrank in my rear-view mirror as my progress continued unimpeded by the inconvenience of a single red light. I managed to make it all the way to work in one, easy, continuous motion. Now, I would estimate that Ive made that exact same journey on over 500 occasions since I moved to Singapore in early 2009 and I can honestly say that I have never once experienced such a smooth ride. The chances of the stars aligning as they did that morning, ensuring my uninterrupted passage are, as empirical evidence would seem to suggest, at least 500/1 - and climbing daily. the world pays rapt attention to the problems besetting Greece, it is surely clear to anybody watching that the odds of all the lights being green and the various vested interests making it smoothly through this crisis are far in excess of those a bookie would quote on a stop-free commute for your humble scribe. Everywhere one looks, there are potential pitfalls every bit as perilous as they seemed to be back in early 2008 when the global economy first tip-toed to the edge of the cliff and took a good look over the edge. Miraculously though, the worlds monetary authorities have somehow managed to keep a long line of distinctly wobbly situations from crashing to earth. As I pondered this, I couldnt help but recall a good, old-fashioned plate-spinner dashing from one end of a line of ominously bowing sticks to the other, frantically attempting to keep assorted pieces of crockery spinning fast enough so that they remained in one piece atop their precarious perches until

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Aram Khachaturians Sabre Dance had finished playing in the background. Sadly, the art of plate-spinning a staple of Saturday night TV variety shows in the 1970s is somewhat lost on todays X-Box generation (though, of course, there is an app), so lets recap for those readers who have absolutely no idea what Im talking about. (Wikipedia): Plate spinning is a circus manipulation art where a person spins plates, bowls and other flat objects on poles, without them falling off. Plate spinning relies on the gyroscopic effect, in the same way a top stays upright while spinning. Spinning plates are sometimes gimmicked, to help keep the plates on the poles. Sound familiar? Yes folks, plate spinning is a manipulation art.

of manipulation as they desperately try to keep various plates spinning but every time Sabre Dance starts to fade in the background it not only starts up again with renewed gusto, but yet another pole is added to the end of the line, topped with a new, spinning disc. The line is getting longer and longer and consequently, the mad dash up and down its length to attend to the various plates which seem to be about to crash to earth is getting more and more frenzied. Generally speaking, when one plate falls from its pole, several others are never far behind. It will come as no surprise to anyone familiar with the art of plate spinning that Spinning plates are sometimes gimmicked, to help keep the plates on the poles after all, if youre going to keep the masses entertained, it makes perfect sense to tilt the odds in your favour in whatever way possible to ensure a more impressive show. In plate spinning, that is achieved through gimmicking the plates. But what exactly IS gimmicking? According to the Websters English Dictionary a gimmick is: i. a mechanical device for secretly and dishonestly controlling gambling apparatus ii. an important feature that is not immediately apparent iii. an ingenious and usually new scheme or angle

urrently, the Fed, the BoE, the ECB and the BoJ (to name but a few) are practicing the art

So - a manipulation that contains features that are not immediately apparent, mechanical devices for secretly and dishonestly exerting control or ingenious schemes or angles. We know a song about that, dont we boys and girls?

Ginza district was changing hands for approximately 100,000,000/m2 (roughly $93,000). After the Nikkei peaked at 38,915 on December 29th 1989 and began its long journey south, the Japanese government embarked on a course of action that would contain all kinds of gimmicks designed to prop up their ailing banks which had lent hundreds of billions of yen to finance the most overpriced real estate market in the world at the time and had become WTBTF (WAY Too Big To Fail).The Japanese experiment commenced in 1990 and, as I write this, 21 years later, theyre still in the lab. During the intervening years, the BoJ have rewritten the book on gimmickry as applied to financial markets and monetary policy and, in March of 2001, after a decade of futility, they were the first to employ a gimmick that was to become a favourite of all those who followed the trail they blazed when

hen I moved to Tokyo as a fresh-faced 22 year-old in April 1989, prime real estate in Tokyos

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they instituted (Thats Quantitative Easing to you and me). (Wikipedia): With quantitative easing, [the BoJ] flooded commercial banks with excess liquidity to promote private lending, leaving them with large stocks of excess reserves, and therefore little risk of a liquidity shortage. The BOJ accomplished this by buying more government bonds than would be required to set the interest rate to zero. It also bought asset-backed securities and equities, and extended the terms of its commercial paper purchasing operation. So how did the original QE work out, I hear you ask? Well as it happens, not so well as the chart below demonstrates. After the initial announcement of by the BOJ, the Nikkei rallied 17% in 6 weeks..... before cratering 47% in the ensuing 2 years. The global recovery of 2003 helped Japan off its knees but, in 2006, when the BoJ finally brought to a close, they deemed it a failure. Japans domestic household and corporate savings have been more than enough to finance their deficit, but those savings are understandably dwindling (although over 90% of JGBs are bought in-house). Nevertheless - this is a plate on a pole. Its just spinning very nicely for the time being.

be the first to topple and smash on the floor, where better to head than Europe SOURCE: BLOOMBERG and, in particular, Greece - the country where plates are smashed at the drop of a hat or at the very least (as far as I can ascertain) at the end of most meals. To discover the origins of the custom of smashing plates in Greece, we turn to the world-famous Zorbas Dance Restaurant in Wolverhampton, England who have this to say about the customs genesis on their website: Greek tradition has it that this practice started when a rich family invited a much poorer family to dinner and to make them feel better invited them to break the plates. They were proving that friendship is everything.

f you want to see the plates that could

After much to-ing and fro-ing this week including a vote of confidence for the Papandreou government that passed by a massive 4 votes, the terms of the latest Greek bailout were finally agreed with the EMU and the IMF finally promising to... well, lets see:

ronically, in the wacky world of 2011, it is the poor Greeks who are desperately inviting their

far-richer neighbours over with the intention of borrowing some much-needed cash.

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(Reuters): Greek Prime Minister George Papandreou promised to push through radical economic reform after his new finance minister clinched agreement with EU and IMF inspectors on extra tax rises and spending cuts to plug a 3.8 billion euro funding gap. A comprehensive reform package... and adoption by the Greek parliament of the key laws on the fiscal strategy and privatization must be finalized as a matter of urgency in the coming days, EU leaders said in a summit statement. This will provide the basis for setting up the main parameters of a new program jointly supported by its euro area partners and the IMF and allow disbursement in time to meet Greeces financing needs in July, the 27 leaders said. So, what theyve promised is contingent on yet MORE austerity being forced upon the Greek people by their elected leaders in order to ensure there is no default. Another plate that looks decidedly wobbly from here.

doing OK after thumbing its nose at creditors in the UK and The Netherlands when its banks collapsed in 2008. Iceland suffered a deep economic slump after the three main banks defaulted on $85 billion in debt three years ago. They were nationalized and the Icelandic government allowed foreign creditors to suffer the losses associated with default (it should be stressed that, while the banks had been nationalized, Iceland at no point defaulted on a sovereign debt payment). In 2009, Icelanders suffered an 18% fall in disposable income, a CPI of 20% and unemployment that soared to 10% from what was essentially full employment before things unravelled. Ugly. Really Ugly. Less than two years later, however, Iceland has returned to the bond markets and a recent $1 billion sovereign debt issue was twice oversubscribed. In fact, the OECD was extremely complimentary about Icelands progress in a recent report (as we can see from this piece in, ironically enough, Irelands RTE News): A report from the Organisation for Economic Co-operation and Development says Iceland has largely recovered from its deep slump in the wake of the global financial crisis. ...Iceland, which was engulfed in economic turmoil after all its major banks collapsed at the end of 2008, has gone far in resolving the economic problems left by the financial crisis, the OECD said in its 2011 economic survey of the country. It said Icelands economy had exited its deep recession by the end of last year and was headed towards economic growth of 3% by 2012, while its collapsed banking system had been recapitalised by the end of 2009. Reforms have been made to regulation and supervision to address shortcomings exposed by the financial crisis, it said, also pointing out that the country had recently adopted a strategy to relax capital controls. The OECD said Iceland was well advanced in implementing a programme agreed with the IMF. The IMF has provided 1.5 billion to Iceland since 2008. The OECD also pointed out that the countrys budget deficit should this year fall below the 3% of gross domestic product limit set by the European Unions Stability and Growth Pact

ut why exactly is a default by Greece quite such a disaster? I mean, Iceland seems to now be

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So, two years of pain and anguish later and Iceland is on the mend once again with growth heading for 3%. Meanwhile, back in the USSA, after a couple of trillion dollars in stimulus: (AP): Federal Reserve officials are more pessimistic about prospects for economic growth and employment than they were two months ago. In an updated forecast, the Fed estimated Wednesday that the economy will grow between 2.7 percent and 2.9 percent this year. Thats down from its April estimate of between 3.1 percent and 3.3 percent Yes, for the mere outlay of a couple of trillion the US is safely on course to grow less than Iceland this year. But back to the giant spinning plate that is Greece and, specifically, the debt that definitely WONT be defaulted on.

who can hear an ominous ticking sound as they pore over their balance sheet in the shadow of a rapidly-deteriorating situation in the Aegean. It did not make for pleasant reading.
60 Total Greek Exposure ($bln) 50 Greek Sovereign Exposure ($bln)

arlier this month, courtesy of the Bank for International Settlements, we got a look at exactly

40

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Frances big 3 BNP, Credit Agricole and Societe Generale between them have $56.7 billion in combined exposure to Greek private and sovereign debt (Credit Agricoles Greek subsidiary, Emporiki Bank, is a major lender to the Greek private sector). Their neighbours across the Rhine in Germany have no major units in-country, but that hasnt stopped them from adding $33.9 billion in Greek debt to their collective balance sheets. The UK? oh, $14 billion. Of course, this is enough to start dozens of plates gyrating wildly in a very unstable fashion, but theres one giant plate alllllll the way at the far end of the line that is starting to show signs that it may be starting to reach the point of instability. Somebody had better get down there - and FAST. I am talking, of course, about the European Central Bank. The guardian of Europes monetary policy.

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of inflation - but one of its subordinate tasks is to promote smooth operation of the financial market infrastructure.

nlike its counterparts across the Atlantic, the ECB has only one main mandate - the control

SOURCE: BIS/TTMYGH

One of the ways it achieves this smooth operation is to accept various forms of collateral from European banks.

US

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Funny thing this collateral stuff. The idea is sound and has been for centuries: (Wikipedia): collateral is a borrowers pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as protection for a lender against a borrowers default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation. If a borrower does default on a loan (due to insolvency or other event), that borrower forfeits (gives up) the property pledged as collateral - and the lender then becomes the owner of the collateral. However, heres a proposition for you. If you had a bunch of bonds that were issued by somebody who you know full well has absolutely zero chance of paying you back because they are bankrupt in all but name, and I offered to lend you a ton of money against them and the only condition I made was that if.. IF you didnt pay me back in full, I would become the owner of those bonds.. what would you do? Whats the matter? Conscience got the better of you? OK, lets try this: Imagine youre a banker. Same question? the expansive policies of recent years have led the world on a credit-fuelled sugar-rush, the ECB finds itself in rather a sticky situation as, after the unraveling of Greece, another major problem has been exposed the Central Bank is now sat on the same side of the lifeboat as the entire banking community who have pledged billions in Greek debt as collateral for loans. If there is a credit event, then according to the charter of the ECB, Greek government debt is no longer acceptable collateral: (IBT): The managing director of Moodys sovereign risk group said on Tuesday it was hard to see how a private sector rollover of Greek debt would be truly voluntary and such a move would therefore likely constitute a default. That doesnt look good. Still, fortunately for those holders of Greek debt, the ever-watchful President of the ECB, Jean-Claude Trichet, is doing everything in his considerable power to make sure that the poor, beleaguered bondholders are taken care of and that the smooth operation of the financial market infrastructure is maintained at all times: (FT): Jean-Claude Trichet yesterday underlined the opposition of the European Central Bank to any bail-out for Greece that would trigger a credit event or be classed as a default. It has to be, in our opinion, a voluntary concept, Mr Trichet said in a speech at the London School of Economics. Avoid whatever would trigger a credit event, avoid whatever would trigger a selective default or a default ... This is our message to governments, he said. ... Mr Trichet added that we are in the presence of a systemic aspect of the situation. I think that our advice [not to trigger a credit event or impose a default on bondholders] speaks for itself. In any case it is very strong advice for those who are taking these decisions. Trichet sure sounds committed to making sure investors are looked after. Lets use some mild capitalization to highlight certain parts of that speech and see what happens:

fter

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It HAS to be... ...avoid WHATEVER would trigger a selective default or a default... In any case it is VERY STRONG advice for those who are taking these decisions... Hmmm..... The ECB is stuffed to the gills with Greek sovereign debt - both through outright purchases and the billions pledged to it as collateral by any bank that was offered the chance to do so - and consequently it shouldnt be much of a mystery to anybody why Trichets language is so forceful when it comes to ensuring there is no credit event. the hell did we get here? Seriously? The whole game of Kick The Can has completely undermined the entire financial system - causing every bit as much damage as the shenanigans of the sub-prime market. The GOOD news is that the key players in the mortgage mess are now all gone - swallowed up in the belly of the remaining beasts, or out of business for good, but we are left with the guardian of the European financial system sitting shakily atop one pole, unbalanced by billions in bad loans and collateral that, no matter WHAT the ratings agencies may say, is junk, while their American counterparts have a balance sheet that looks like this (graph, left). Essentially, everything SOURCE: CASEY RESEARCH above the dark blue band at the bottom of the kaleidoscope of colour you see is - well, how do we put this politely? - not exactly the sort of stuff youd want in your pension fund. What about the Asian Central banks? Well, they have the same duties to perform as those conducted by Benny & The Feds and JCTs ECB, but they seem to go about them with far less fanfare. Well get into that another time, but before we go lets return to the Wikipedia definition of plate spinning and see how the same business is conducted in very different fashion in the Orient and the Occident: (Wikipedia): ...Many Chinese acrobatic troupes feature plate spinning usually combined with contortion or acrobatic skills. These usually feature performers holding several plates in each hand spinning on sticks. Western plate spinning performers usually present comedy acts and typically feature one performer with an assistant, spinning multiple plates on sticks held vertically in stands. Hmmm..... acrobatic skills, or comedy? I know which ID prefer in a Central Bank.

ow

25 June 2011

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began this edition of Things That Make You Go Hmmm..... wondering aloud as to the chances of the various vested interests making it smoothly through this crisis so what better way to close than a quick trip back to our old friend Wikipedia to get a handle on what exactly a vested interest is: (Wikipedia): VESTED INTEREST - When the right, interest or title to the present or future possession of a legal estate can be transferred to any other party, it is termed a vested interest smell trouble

HOUSEKEEPING
Before we go any further, I need to set something right. In the last edition of Things That Make You Go Hmmm..... I posted a link to two videos on the ESF. I accidentally omitted the correct attribution and, in doing so, did a grave disservice to Eric de Charbonnel at www.marketskeptics.com who has done some amazing work on the ESF and, as included in a recent edition of this publication, the selling of puts by the Treasury. Eric, if youre out there, my sincere apologies. And so to todays fun and games and as you can probably imagine, its pretty much soaked in Greece. Marshall Auerback kicks things off with an outline of a Trojan Horse rescue plan, we hear how Greek debt holders may end up with a 70% haircut, find out that, perhaps unsurprisingly, European leaders are backing George Papandreou to the hilt, Mervyn King warns just how bad the Greek situation is for the UK and we cross the pond to see how money is fleeing Money market funds with European bank exposure. Elsewhere in Europe, Spain has an airport just waiting for an aeroplane, while Belgium has leased out something valuable that it may not be able to get back and in Asia, we take a look at the upcoming elections in Thailand and profile the most polarizing figure in Thai politics - Thaksin Shinawatra. In precious metals news, Frank Holmes lays out just how undervalued the mining stocks are looking, Sprott chief strategist John Embry wonders aloud whether the Central Banks have all the gold they profess to owning (a question made more pressing by Belgiums admission) and Jim Rickards weighs in on what the Fed may do in the gold markets to ease the debt burden. We also hear the story of a modern-day pan-handler who may start a gold rush on the sidewalks of Manhattan. As the number of people on food stamps in the US continues to rise, we look at the darker side of the story, Cook County in Illinois is starting to look a LOT like a European economy as they make some surprising finds in their finances, the CBO issue a scary report and a we hear the tragic story of why a man robbed a bank of $1 and calmly waited for the police to arrive. Throw in charts of Shibor, Canadian mortgage debt, high net worth individuals and recessions & recoveries, mix in a little Jim Grant, add a dash of Jon Stewart and voila!

K
25 June 2011

eep the plates spinning folks - Ill be back next week.

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Contents
Trojan Horse Rescue In Greece Greek Debt Holders Face 70% Haircut Will Gold Equity Investors Strike Gold? Europe Throws Its Support Behind Greek Prime Minister The Food-Stamp Crime Wave US Man Stages $1 Bank Robbery To Get State Healthcare Belgian Central Bank Leases 41% Of Its Gold Reserves Pappas Details Impact Of Local Government Debt Spains Building Spree Leaves Some Airports And Roads Begging To Be Used Eurozone Debt Crisis Poses Biggest Threat To UK Stability CBO Releases Daunting Long-Term Outlook Thaksins Last Stand Flight From Money Market Funds Exposed To EU Banks New York Man Makes $500 A Week From Gold In Pavement Cracks Charts That Make You Go Hmmm..... Words That Make You Go Hmmm..... And Finally.....

25 June 2011

The Gonnie, Gonnie Banks

# 48 Bank Mountain Heritage Bank, Clayton, GA Total Cost to FDIC Deposit Insurance Fund Assets ($m) 103.7 Deposits ($m) 89.6 Cost ($m) 41.1 41.1

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European Monetary Union (EMU) has a huge democratic deficit at the heart. It is technocracy pushed to a politically unsustainable limit. What the ECB, EU or IMF is proposing is not in fact a genuine United States of Europe liberal democracy, but an unelected bureaucracy to rule without accountability to the people and impose whatever regime the elites deem suitable at any point in time. This would be anti-democratic, which is doubly ironic considering that Greece is going through the charade of signing a national suicide pact in order to sustain the unsustainable). The most recent labor force data released by Statistics Greece revealed an unemployment rate of 16.2% generally. But among 15-24 year-olds, the unemployment rate is now 42.5%, rising from 29.8% in 2010. For 25-34 year-olds, the unemployment rate is 22.6%. Female unemployment was estimated to be 19.5%. This is the stuff of which revolutions are made. There is no relief in sight as the EU elites continue to grind the nation into the modern day equivalent of a debtors jail. They fail to understand that if you savagely cut government spending while private spending is going backwards and the external sector is not picking up the tab, then the economy will tank. Under those conditions, policies that aim to cut the budget deficit will ultimately fail.

he

... Well, lets be honest about whats really happening here. We can first throw out the silly notion that this rescue package has anything at all to do with the welfare of the Greek people: its a bank bondholders bailout, plain and simply

So why persist with this ruinous course of action? Well, lets be honest about whats really happening here. We can first throw out the silly notion that this rescue package has anything at all to do with the welfare of the Greek people: its a bank bondholders bailout, plain and simply. As Bill Black recently noted in New Economic Perspectives,

The EU is not lending money to Ireland, Greece, and Portugal to help those nations citizens. The EU is lending those nations money because if they dont those nations and their citizens and corporations will be unable to repay their debts to banks in the core. That will make public the fact that the core banks are actually insolvent. When the Germans and French realize that their banks are insolvent the result will be severe banking crises and a return to recession in the core of the eurozone. The core, not simply the periphery, will be in crisis. The ECB and the EUs leadership would be happy to throw the periphery under the bus, but the EU cores largest banks are chained to the periphery by their imprudent loans.

To reiterate: this is not a Greek problem or a problem of the so-called Mediterranean profligates. Jurgen Stark of the ECB tells us that restructuring, whether soft (reprofiling) or hard (default), would be a disaster for the Greek banking system. But the Greek banking system has much less total exposure than the Eurozone, including the ECB itself. The ECB could easily assume the debts, secure genuine pricing transparency, and then impose haircuts on the bond holders. If the resultant price discovery renders these universal banks insolvent, then nationalize them as the Swedes and Norwegians did in the early 1990s, and simply tell the holders of credit default swaps (CDSs) on Greek debt to take a hike. After all, there is no risk of default once the entity holding this euro-denominated debt is the very entity responsible to credit any bank account it likes to any sum in euros. The ECB, the EU and the national governments of Europe (indeed, virtually the entire world) should simply underwrite all commercial risk banking exposures which deal with real economic activity and by law exclude all other claims from any safety net. That includes remaining speculative financial activity in things like CDS contracts which I have long argued should be specifically banned as a financial sector activity.
O O O

MARSHALL AUERBACK / LINK

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rivate

investors will need to accept losses of as much as 70pc on their holdings of Greek sovereign debt to put the stricken country back on a sustainable path, according to economists.

Barclays Capital and Fathom Consulting staff yesterday joined the growing chorus of voices warning a restructuring is inevitable for Greece and that an immediate solution would require a massive default on the countrys 347bn (307bn) of debt. To achieve solvency, Greece needs to write off about 60pc of its debts, said Piero Ghezzi, BarCaps head of economics research. Once the International Monetary Fund (IMF) and European Union (EU) loans are excluded, and the holdings of domestic banks taken out of the equation, foreign creditors would need to take a 70pc haircut. Greek, EU and IMF officials are negotiating with the private sector about a voluntary involvement as part of a second bail-out, expected to be as much as 120bn on top of the 110bn already committed. Yesterday, Institute of International Finance (IIF) managing director Charles Dallara met Greek Prime Minister George Papandreou and Finance Minister Evangelos Venizelos to discuss how private sector creditors can assist Greeces reform program, the IIF said. Fathom has also estimated that the countrys private sector creditors need to take a 70pc haircut. Some of the risk, it added, has been taken by UK and US banks through credit default swaps insurance against a Greek default. US banks have provided 25bn of insurance and the UK banks 3.7bn. BarCap also argued the crisis could be contained in Greece as both Ireland and Portugal may be able to get their public finances in order without defaulting. Antonio Garcia Pascual, BarCaps chief southern European economist, said: For Ireland and Portugal, we do think that the IMF and EU programme could work without a debt restructuring.
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UK DAILY TELEGRAPH / LINK

a substantial opportunity to buy healthy, gold mining companies at historically low prices compared to gold bullion. Cooper says that the net result is that gold companies can now be purchased for about their intrinsic value for the spot price of bullion. Historically, one could purchase about 4.4. units of the XAU for the price of an ounce of gold. That ratio fell to less than 3 units per ounce in the mid-1990s when gold prices bottomed but has averaged 5.2 units during the current bull market.

his years carnage has created

SOURCE: BLOOMBERG/CIBC

You can see from the chart (above) that todays level is 46 percent above the historical norm at 7.6 units to one ounce of gold. By this measure, one can purchase shares of gold mining companies at their second-cheapest level in nearly 30 years. The extreme was in 2008 during the depths of the

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financial crisis; many share values quadrupled off of those levels. One way gold companies can lure investors is by sharing their profits through dividends. This would provide a cash incentive to hold shares of the company and allow investors to participate in rising earnings. We like the idea of investors getting paid to wait or reinvesting those dividends and purchasing additional shares at potentially lower prices.
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FRANK HOLMES / LINK

Prime Minister Giorgios Papandreou has become immensely unpopular back home. But at the European Union summit in Brussels on Thursday evening, EU leaders offered him their unwavering support. Opposition leader Antonis Samaras, for his part, was heavily criticized. Greek Prime Minister Giorgios Papandreou was notably silent during dinner in the European Council building in Brussels on Thursday night. Everything, after all, had already been said. As the European Union summit began, he had been hoping for yet another clear indication that the EU was completely supportive of Greece -- and he got what he wanted. The 27 EU heads of government and state granted their approval for a second aid package for Greece -- on condition that Papandreou, 59, and his socialists were able to push yet another austerity package through the Greek parliament on June 28. At their traditional meeting prior to the summit, conservative heads of state and government turned up the pressure on the conservative head of the Greek opposition Antonis Samaras. He has presented himself as a staunch opponent of further austerity measures in Greece -- and should he be successful in torpedoing the package in next weeks vote, it could very well lead to a cessation of foreign aid payments to Athens and the insolvency of his country. The consequences for the European common currency and for the global economy would be immense. The debate among the conservatives was unusually passionate. Diplomacy was set aside and Samaras was left in no doubt that his European colleagues were furious with the course he has chosen to chart. One leader spoke of his positive experiences with the International Monetary Fund (IMF) and suggested that Samaras follow its advice. Swedish Prime Minister Fredrik Reinfeldt said that it is very important that no Greek political leader tells the Greek people that they have a shortcut. German Chancellor Angela Merkel -- pointing to the fact that Samaras conservative party had been in power for years prior to Papandreous CLICK TO ENLARGE election in 2009 and was thus equally responsible for the countrys untenable national debt -- said that Greek conservatives should accept their historical responsibility.
SOURCE: DER SPIEGEL

reek

Still, few concrete results emerged from the EU summit on Thursday evening. Even as leaders sought to provide their backing to Papandreous course, rhetoric trumped resolutions. Before the summit even began, Merkel had said that no operative resolutions regarding further aid to Greece could be

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expected. Indeed, the timeline for putting together a new bailout package was agreed to by euro-zone finance ministers last Sunday in Luxembourg. By the time the group meets again on July 3, the basic elements of such a package will have been worked out. Only then will it become clear how big the package will be (initial estimates go as high as 120 billion) and to what degree private investors will be expected to contribute.
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DER SPIEGEL / LINK

are now legally entitled to collect food stamps as long as they have little or no monthly income. Thirty-five states have abolished asset tests for most food-stamp recipients. These and similar paperwork reduction reforms advocated by the United States Department of Agriculture (USDA) are turning the food-stamp program into a magnet for abuses and absurdities. The Obama administration is far more enthusiastic about boosting food-stamp enrollment than about preventing fraud. Thanks in part to vigorous federally funded campaigns by nonprofit groups, the governments AmericaCorps service program, and other organizations urging people to accept government handouts, the number of food-stamp recipients has soared to 44 million from 26 million in 2007, and costs have more than doubled to $77 billion from $33 billion.

illionaires

... some food-stamp recipients were selling their cards on Craigslist or brazenly cashing them out on street corners (for 50 cents on the dollar) and using the proceeds for illegal drugs and prostitution

The USDAs Food and Nutrition Service now has only 40 inspectors to oversee almost 200,000 merchants that accept food stamps nationwide. The Government Accountability Office reported last summer that retailers who traffic illegally in food stamps by redeeming stamps for cash or alcohol or other prohibited items are less likely to face criminal penalties or prosecution than in earlier years.

Earlier this month, the Milwaukee Journal Sentinel revealed that Wisconsin food-stamp recipients routinely sell their benefit cards on Facebook. The investigation also found that nearly 2,000 recipients claimed they lost their card six or more times in 2010 and requested replacements. USDA rules require that lost cards be speedily replaced. The Wisconsin Policy Research Institute concluded: Prosecutors have simply stopped prosecuting the vast majority of [food-stamp] fraud cases in virtually all counties, including the one with the most recipients, Milwaukee. Troy Hutson, the chief of Washington states food-stamp program, resigned in April after a Seattle television station revealed that some food-stamp recipients were selling their cards on Craigslist or brazenly cashing them out on street corners (for 50 cents on the dollar) and using the proceeds for illegal drugs and prostitution. Washington state Sen. Mike Carrell complained: Dozens of workers at DSHS [the Department of Social and Health Services] have reported numerous unpunished cases of fraud to me. They have told me that DSHS management has allowed these things to happen, and in some cases actively restricted fraud investigations.
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WSJ / LINK

So on 9 June James Verone left his Gastonia home, took a ride to a bank and carried out a robbery. Well, sort of.

to. But if youre unemployed in North Carolina with no health insurance, there is no obvious way.

t was not perhaps the most obvious way of getting a bad back, arthritis and a dodgy foot seen

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What he did was hand the clerk a note that said: This is a bank robbery, please only give me one dollar. Then, as he later told the local NBC news station, he calmly sat in the corner of the bank having told the clerk: Ill be sitting right over there in the chair waiting for the police. Before his peculiarly modest robbery, Verone, 59, sent a letter to the Gaston Gazette. When you receive this a bank robbery will have been committed by me for one dollar. I am of sound mind but not so much sound body. He invited the paper to send a reporter to interview him in Gaston county jail, where he is now in custody facing charges of stealing from a person (for just $1 the prosecutors didnt think they could hold up a bank robbery charge). He told the paper he had lost his job after 17 years as a Coca-Cola delivery man, and with it his health insurance. He was in increasing pain from slipped discs, arthritic joints, a gammy foot and a growth on his chest. Since being in the jail he has attained his goal: he has been seen by nurses and an appointment with a doctor is booked.
O O O

UK GUARDIAN / LINK

central bank Vice Governor Francoise Masai reportedly told shareholders that about 41% of the central banks 216 metric tons of gold was on loan at the end of last year, and that the central bank earned a 0.3% return on its loans of physical gold to commercial banks last year. There are two points to note about this. The first is the puny annualised return earned on the gold leasing market. The second is the significant percentage of the central banks gold lent out. This is a reminder that the paper gold market is significantly larger than the ... This is a reminder that the paper physical market. Just like a run on a bank in a fractional banking gold market is significantly larger than system, GREED & fear suspects it will be very hard to settle all the the physical market. Just like a run on paper claims to gold physically in a real scramble for the metal. This is why in a parabolic spike physical gold is likely to trade at a signifia bank in a fractional banking system, cant premium to paper claims. On this point GREED & fear should GREED & fear suspects it will be very make it clear that the 25% of the global portfolio for a US dollar-denominated pension fund allocated to gold bullion is in physical gold. hard to settle all the paper claims to

elgian

gold physically in a real scramble for the metal

Meanwhile, it is an interesting note that more than a dozen state legislators in America have now seen bills introduced that would make gold and silver coins legal tender in the respective states. Thus, gold and silver coins minted by the US government are now considered legal tender in Utah. Much of this activism is coming from Tea Party supporters. Financial sophisticates will scoff. But to GREED & fear it is a healthy sign that some people in America are thinking. For more on this popular movement to return to the monetary role of gold read an article published last week by the Los Angeles Times (Pushing for a return to the gold standard, 3 June 2011 by Nathaniel Popper).
O O O

GREED & FEAR (VIA MIKE KRIEGER)

figures presented by Cook County Treasurer Maria Pappas today. Cook Countys numerous local governments face mounting debts totaling more than $108 billion. And, for the first time, specific figures have been collected for municipal unfunded pensions obligations totaling in excess of $25 billion,

ook County taxpayers are on the hook for a staggering amount of local debt, according to

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almost a quarter of debt countywide. The total figures translate into an average debt-per-household in the city of Chicago of $63,525, and $32,901 in the suburbs. At a gathering of more than 50 business, civic and community leaders at the Civic Federation, Pappas disclosed the alarming figures collected through the Countys Debt Disclosure Ordinance (DDO). We knew that debt and unfunded pension obligations were serious problems at the state and federal level and assumed that a similar pattern would follow at the local level. But, quite frankly, I was stunned by the depth of the crisis for local governments, said Pappas. This goes well beyond big cities, where you expect financial challenges. These fiscal problems permeate townships, villages, school districts, park districts, fire protection districts and more, and the taxpayers are on the hook. Specifically, the total $108 billion in debt comes from the countys various taxing districts:
AGENCY TYPE Municipality Education County Sanitary Park Fire Township Library Special Grand Total QUANTITY 119 160 2 13 88 30 29 49 8 498 TOTAL DEBT $61,052,985,289 $20,510,421,394 $18,173,343,462 $4,398,506,156 $3,216,716,581 $302,945,577 $277,525,109 $226,049,670 $154,183,703 $108,312,676,941

For years Ive had people stop me, call me and write me with one simple question: why are my taxes going up? said Pappas. After years of hearing the question, I went to the Cook County Board of Commissioners and asked it for this ordinance. In 2009, Treasurer Pappas proposed and the Cook County Board enacted the Debt Disclosure Ordinance requiring all 553 primary governmental agencies in Cook County to report their yearly budget and their debt. After reviewing that information, Pappas went back to the County Board in January and asked for an amendment requiring these governmental units to report, for the first time, their pension liabilities and their unfunded pension liabilities.
O O O

COOK COUNTY TREASURER / LINK

To justify the grand opening, Carlos Fabra, the head of Castellns provincial government, argued that it was a unique opportunity to turn an airport into a tourist attraction, giving visitors full access to the runway and other areas normally off-limits. This Sunday, it will be used as the starting point for part

March, local officials inaugurated a new airport in Castelln, a small city on Spains Mediterranean coast. They are still waiting for the first scheduled flight.

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of Spains national cycling championships, featuring the three-time Tour de France champion Alberto Contador. Castelln Airport, built at a cost of 150 million euros ($213 million), is not the only white elephant that now dots Spains infrastructure landscape. Spains first privately held airport in Ciudad Real in central Spain was forced to enter bankruptcy proceedings a year ago because of a similar lack of traffic. Across the country, nearly empty toll roads are struggling to turn a profit. Other projects are surviving only with continued public financing, which has been cast into doubt by Europes sovereign debt crisis. Over the last 18 months, Spain has been in investors line of fire after permitting its budget deficit to balloon during a long property bubble, which finally burst alongside the worldwide financial crisis. To clean up the mess, the Socialist government of Jos Luis Rodrguez Zapatero introduced austerity measures last year that, among other things, shrank spending ... Over the last two decades, Spain built on infrastructure. That has left some projects in limbo, despite transportation networks at a rate that few political pledges to keep them alive.

other European countries approached.

Over the last two decades, Spain built transportation networks at a rate that few other European countries approached.

Having opened its first high-speed train connection between Madrid and Seville in 1992, Spain overtook France last December as the country operating Europes biggest high-speed rail network, covering just over 2,000 kilometers, or 1,200 miles. Growth in road and air transport has been just as spectacular. Between 1999 and 2009, Spain added over 5,000 kilometers of highways the biggest road construction endeavor in Europe. And its 43 international airports handle more cross-border passengers than any other country in Europe. Such expansion has been a source of intense national pride. It has also brought major economic benefits to some previously isolated and impoverished regions.
O O O

NYT / LINK

he eurozone debt crisis poses the most material and immediate threat to the UKs financial
stability, according to a report by Sir Mervyn Kings Financial Policy Committee.

Sovereign and banking strains are the most material and immediate threat, the committee, chaired by the Bank of England governor, said in its inaugural report. The committee called for banks to improve their disclosure of sovereign and bank sector exposure and also warned that authorities needed to keep a closer eye on the explosion of opaque products such as exchange traded funds (ETFs), which banks increasingly use to raise funds. It follows an overnight victory for David Cameron in preventing British taxpayers money being used to bail out Greece. At a European Union summit in Brussels, the Prime Minister won a fight with Angela Merkel, the German Chancellor, to keep Britain out of any new rescue package. Germany had wanted to use money from the European Financial Stability Mechanism to bail out Greece. Britain is a contributor and has no veto on how its 11.85billion (10.5billion) funds are used. But Herman Van Rompuy, the EU president, said that the EFSM would not be part of the package.

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Speaking at a news conference hours later, Sir Mervyn King said uncertaintainty over exposure to countries such as Greece could lead to a crisis of confidence, which posed a bigger risk than direct exposure. There is always uncertainty about the scale of exposures, which counter-parties out there are the ones which are heavily exposed, he said. That uncertainty can lead at various points for funders of banks...to draw back and there can be a crisis of confidence in sentiment in which people say I simply dont understand the complexity of the interconnectedness of these exposures and I just wont take the risk crisis based on solvency or of lending. And that is the bigger risk, I think. Mr King also said that the ongoing crisis in Greece was not a matter of liquidity, but solvency, and a build-up of large amounts of debt:

... It was a to be more precise, the build up of very large amounts of debt...

Right through this crisis...an awful lot of people wanted to believe that this was a crisis of liquidity. It wasnt, it isnt. And until we accept that we will never find an answer to it. It was a crisis based on solvency or to be more precise, the build up of very large amounts of debt where concerns crept in on the ability of the borrowers to repay that debt, he said.
O O O

UK DAILY TELEGRAPH / LINK

makers ability to adopt tax and spending priorities in good times and reducing flexibility during recessions, all while making a fiscal crisis more likely and hindering long-term growth, the nonpartisan Congressional Budget Office said Wednesday.

ncreasing federal debt will be a growing burden on government action, crowding out law-

In the annual Long-Term Budget Outlook, the legislatures budget scorekeepers said that the ratio of debt to GDP this year will be 69 percent, 7 percentage points higher than last year. In 2021, the CBO predicts debt will reach 76 percent of GDP, but under a more dire ... In 2021, the CBO predicts debt and more likelyscenario, the public debt will be 101 percent of GDP will reach 76 percent of GDP, but 10 years from now, well into the economic danger zone of 90 percent or more.

under a more direand more likelyscenario, the public debt will be 101 percent of GDP 10 years from now, well into the economic danger zone of 90 percent or more.

Last year, that worst-case scenario predicted a debt-to-GDP ratio of 87 percent in 2020, demonstrating that the public debt picture has worsened considerably, in part due to a bipartisan tax deal last year that reduced expected revenue.

While much of the debt is driven by the recessions drop in tax revenues and government actions taken in response to the economic calamity, CBO highlighted the structural deficit that existed before 2007 and cites growing health care costs and the aging population as a major driver of government spending; federal health spending is set to grow from less than 6 percent of GDP today to more than 9 percent in 2035. The CBO says that allowing the 2010 tax deal that extended Bush administration tax policies to expire as planned would be helpful in keeping government sustainable, noting that significant increase in revenues and decrease in the relative magnitude of other spending would offset muchthough not allof the rise in spending on health care programs and Social Security. However, the CBOs more likely scenario assumes that the tax deal is extended, that the alternative minimum tax would continue to be restricted, and that the doc fix, Congresss annual decision to

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ease limits on Medicare physician pay, will occur as expected. Under this scenario, debt would rise to 187 percent of the economy in 2035.
O O O

NATIONAL JOURNAL / LINK

one form or another, Thaksin Shinawatra has been in the thick of Thai politics for a decade. Since September 2006, when the two-term prime minister was ousted in a coup, he has had to rely on proxies to fight his corner. And so, on July 3rd, Mr Thaksins youngest sister, Yingluck Shinawatra, will be his stand-in when Thais vote in the first national election since December 2007. The timetable has quickened the pulse at Mr Thaksins luxury villa in Dubai. Behind heavy curtains, he receives important guests and hosts syrupy videoconferences with rank-and-file supporters back home, the so-called red shirts. Their demonstrations paralysed central Bangkok last year. The army eventually put down the protests, with 92 killed. It sharpened the divisions between those who love and loathe Mr Thaksin.

...In one form or another, Thaksin Shinawatra has been in the thick of Thai politics for a decade.

The red shirts battle cry was for new elections. Now that the prime minister, Abhisit Vejjajiva, has dissolved parliament, some wonder if the process might somehow be derailed. The ultranationalist, and anti-Thaksin, yellow shirts have called for an appointed royalist government to clean up politics. Asked about coup plots, military chiefs serve up boilerplate denials, just as they did in 2006. Mr Thaksin seems unruffled by such talk. Elections will go ahead, he insists, and Pheu Thai, the party led by Ms Yingluck, should win a clear majority, assuming no electoral hanky-panky. With victory, Mr Thaksin says, Pheu Thai would invite smaller parties into a coalition government, to be the ferns in a beautiful flower arrangement. For Thailands royalist generals, a victory for Mr Thaksin is an unpleasant prospect. Many red-shirt leaders want to punish those who ordered and carried out last years crackdown. Pheu Thai aims to amend the current constitution, drafted under military rule. It pledges to repatriate Mr Thaksin as part of a political-amnesty scheme. Mr Thaksin has told supporters he will return in November. And when I say something, I mean it. For now, though, he is a fugitive from Thai justice. A two-year jail term awaits him in Thailand, passed in absentia for corruption. Mr Thaksin complains that he has been bullied politically, and subjected to Mickey Mouse court cases. Yet he claims he is ready to forgive, if not forget. His opponents will need more convincing. After all, Mr Thaksin is widely seen as having fomented violent demonstrations and arson attacks in Bangkok (he insists that protesters were peaceful until provoked). He has many powerful enemies, including in royal circles. Any attempt at a compromise between Thailands warring factions, which go beyond a simple red-yellow divide, is that much harder with Mr Thaksin on centre court.
O O O

THE ECONOMIST / LINK

are withdrawing cash from money market funds heavily exposed to short-term debt issued by European banks out of fear that a Greek default could spark contagion across the regions financial sector. At the same time there is increasing reluctance among US banks to lend to their European counter-

nvestors

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parts in the past two weeks because of growing worries over Greece, according to brokers and bank traders. Investors have not forgotten how some money market funds, viewed as cash-like holdings, had shortdated Lehman Brothers debt and lost money after the bank declared bankruptcy in September 2008. In the past two weeks, $51bn has been pulled out of US funds that own non-government securities, according to data from the Investment Company Institute, as concerns mount that banks in Europe could face potential losses from holdings of Greek debt. Dealers say investors are instead seeking the relative safety of funds owning government debt such as US Treasuries. Yet the withdrawals, while significant, are still dwarfed by the sums withdrawn following the collapse of Lehman in 2008 when institutional investors pulled more than $400bn from US money market funds exposed to non-government debt over the ensuing month. Brad Golding, a managing director at Christofferson Robb, a hedge fund, said that the bad memories from Lehman were spooking some money market investors more than a real risk of a repeat of a fund breaking the buck. ...Fitch Ratings estimates that the paper issued by the 15 largest banks comprises more than 40 per cent of total money market fund assets ($2,700bn). Of the top 15, ten are European institutions that in aggregate account for 30 per cent of total money market fund assets, said Fitch.
O O O

FT / LINK

... I may gold rush on the streets of New York...The soil in the sidewalks of 47th street are saturated with the stuff

Raffi Stepanian, 43, has begun crawling around the New York Diamond District on his hands and knees, plucking jewels and fragments of precious metals from bebe about to trigger a new tween the slabs. Armed with a pair of tweezers, Mr Stepanian, an unemployed diamond setter from Queens, claims to have collected $1,010 (623) worth in the past fortnight. Im surviving on it, he said.

he streets of New York may not quite be paved with gold. But one man in America is proving
that the cracks on Manhattan pavements really can bear riches.

I may be about to trigger a new gold rush on the streets of New York, Mr Stepanian told The Daily Telegraph. The soil in the sidewalks of 47th street are saturated with the stuff. Mr Stepanians haul so far has included chips of diamonds and rubies, bits of platinum, and gold fragments from watches, earrings and necklaces. He has sold most of his discoveries to metal refiners or diamond sellers, while keeping some gold with a view to melting it down for future use. You might get $30 per piece, but it all adds up, he said. It is a rich area and people simply drop things, or their jewellery falls on the street, and it gets stuck in the mud or the gum, he said. Its like a mine, but more concentrated.
O O O

UK DAILY TELEGRAPH / LINK

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We live in extraordinary times

SOURCE: CASEY RESEARCH/RIGHTWAY

100-year chart of the US 30-year mortgage rate (top) and the craziness that has been the Shanghai Interbank Offered Rate (SHIBOR) this past week or so.

CLICK TO ENLARGE

SOURCE: SHIBOR

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ome interesting data on the worlds high net worth individuals courtesy of the UK Guardian

CLICK TO ENLARGE

SOURCE: UK GUARDIAN

position has long been that the driver of house price appreciation in Canada over the past decade has been primarily the result of the unprecedented expansion in debt caused by the loosening of CMHC mortgage insurance requirements and the removal of the maximum insurable mortgage ceiling....facilitated by a falling interest rate environment, a new mass perception of the investment worthiness of real estate as an asset class, and the emergence of housing as a form of conspicuous consumption. But if we boiled them all down into one word, it would be this: DEBT! And the pace of debt accumulation is not sustainable... ergo, the pace of house price appreciation is not sustainable. Nor are house prices at current levels relative to underlying fundamentals. (via ZeroHedge)
O O O

ECONOMIC ANALYST / LINK

CLICK TO ENLARGE

SOURCE: ECONOMIC ANALYST

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CLICK TO ENLARGE

SOURCE: MINNEAPOLIS FED

ecessions & recoveries:

The 2007-2009 recession officially ended in June of 2009 (the second quarter). How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?
O O O

MINNEAPOLIS FED (VIA BARRY RITHOLTZ) / LINK

CLICK TO ENLARGE

SOURCE: MINNEAPOLIS FED

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them, the worlds Central Banks own a little over 30,000 tonnes of gold and that little nest-egg underpins the entire fiat money system. The US holds over 80% of its reserves in the yellow metal. Or do they? After the interesting news from the governor of Belgiums central bank this year, Sprott Asset Management Chief Strategist, John Embry, has other ideas... LOTS of goodies in this interview.

etween

CLICK TO LISTEN

G. Rickards, market intelligence executive for research firm Omnis, interviewed today by CNBC about the Greek debt problem, remarked that he expects that the international bailout business soon will pass to the International Monetary Fund and result in the issuance of more Special Drawing Rights, money printing for which no particular government will have to bear sole responsibility, an engine of general worldwide inflation that will punish savers. Rickards added that to create more inflation, the Federal Reserve could buy gold in the market and bid the price up substantially, devaluing the dollar and easing debt burdens.

James

CLICK TO WATCH

we are not going to get is a concession that QE2 has achieved its unintended consequences, namely a lower dollar exchange rate, a higher gold price meaning weaker confidence in the dollar, slower economic growth and a higher measured rate of inflation. Those are some of the things that have come out of this experiment and let us call it by its name money printing... Jim Grant on the subtext to Ben Bernankes press conference this week. Classic Grant (via zerohedge)

hat

CLICK TO WATCH

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and finally
J
on Stewart - I love you and I dont care who knows it.

Incidentally, as funny as Jon is, the unedited version of his interview with Foxs Chris Wallace last week, demonstrates that hes also a very smart guy. Some people think Stewart won this bout, others give it to Wallace. Heres a chance to make up your own mind. Its definitely worth your time if, like me, youre a fan.

CLICK TO WATCH

PART 2

PART 3

Hmmm
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THINGS THAT MAKE YOU GO HMMM..... 2011

COMMENTS

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