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Bank Run in Latvia!
At the beginning of this week, Latvia had a bank run occur. Approximately 1.5% of the the funds deposited were withdrawn in a single day. This bank run shows how quickly a financial situation can go from bad to worse. Check out this video to learn more about bank runs.
Jim Rodgers: The Fed is the Worst Central Bank in the World
Jim Rogers discusses how the Federal Reserve is destroying the dollar and the US itself. He also talks about how in comparison to other Central Banks the US Central bank is arguably the worst in the world.
November 2011 Unemployment Numbers
November Unemployment Numbers are Deceptive and a Forecast of 2012November 2011 unemployment numbers were posted showing a drop from 9% to 8.6% with 120,000 jobs being created. However, what these number deceptively leave out is the number of people who stopped looking for jobs in November, over 315,000 people! Additionally, Gerald outlines his projections for 2012 and shows that we are truly in for an economic 9/11.
China Cuts Banks Reserve Requirements by 50 Basis Points!
Today China also cut their bank’s reserve requirements by 50 basis points. The general idea behind such a move is that if China cuts the size of the reserve its banks have to keep than the banks will take the difference and go out and invest it in the economy. This move by the Chinese is inflationary and also shows their lack of confidence in the global markets. Check out the 3 minute video above to get more details.
Could the Eurozone Collapse in 10 Days?
The Eurozone is quickly approaching the edge of the cliff. Italy, Spain, Portugal, Greece, and, Belgium are all in a mess right now. Some experts claim that it could have as little as 10 days before it collapses. There are definitely options that would make the Eurozone survive longer than this, but there is definitely a real danger and it is extremely unlikely that the Euro will survive in the long-term.
US Crosses Over the $15 TRILLION Debt Line!!!
Yesterday, November 16th, 2011, the United States finally crossed over the $15 Trillion debt mark. More importantly, on Halloween night, the U.S. crossed over the 100% debt/GDP ratio!
For most Americans, this brought little alarm because they have become so used to the United States tolerance of debt. However, the significance of this event cannot be underestimated. For those who don’t know, the debt to GDP ratio is a measurement of total government debt compared to the overall size of the economy. So when we say the U.S. has a 100% debt to GDP ratio, we are saying that the US had a $15 trillion economy and a $15 trillion debt. So what? That truly is the question. What most investors don’t understand is that if we look over the past 1000 years of economic history, we will find that there has been only one country that has ever crossed the 160% debt to GDP ratio and actually been able to take their debt back to a manageable level. This country was Great Britain during its imperial might in the 1700s and 1800s and the circumstances surrounding their return were extremely unique and not likely to be repeated. With the U.S. government crossing over the 100% mark, that puts us well over half way there and with no sign of stopping.
In addition to our government debt, the U.S. citizens and businesses have large amounts of debt. When you combine the debt of the individual, business, and government, it amounts to an astounding $55 trillion! The United States cannot continue to go down this path.
Unfunded Social Security and Medicare
Unfortunately, the information only gets worse. The United States also has large unfunded obligation stretching out over the next 50 years to Social Security and Medicare. When we combine these debts and adjust them for inflation, the US has an additional $163 Trillion in debt coming down the pipe! This, added to our current debt load gives us a whopping $177 Trillion in debt or 1180% debt to GDP! Obviously, our economy will grow over the next 50 years and so the percentage of debt to GDP will not be this high, but the point still remains we are talking about mathematically unsustainable debt loads.
In the end, unless radical change begins, soon there will be no hope for the United States. The only reason such recklessness has been sustainable up to this point is the U.S. dollar remaining as the world’s reserve currency. However, year after year, more and more countries talk about dropping the U.S. dollar as the reserve currency, and eventually they will make good on their threats. Inevitably, unless the U.S. changes its course, it will follow the path of every other major indebted nation before it. It will print vast quantities of money to the point that it brings on hyperinflation and the complete destruction of the dollar. In a situation like this, the only investors who win are holding hard assets. Gold and Silver have historically been the preferred choice and have stood the test of time. Investors have to consider the debt crisis in their investment philosophy.
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Josh Renfro
President & Founder
Lone Star Bullion LLC
US Debt Potentially Downgraded by the Chinese!
In the face of the massive economic crisis in Europe, it is very easy to forget that there is an even larger economic elephant in the room. However, recent action by the Chinese has once again brought this issue to light. While the United States avoided default narrowly several months ago, they did not reduce their major deficit spending. Consequently they appointed a “super committee” to find areas where budget cuts could be made to fix the deficit. The Republican’s response was to cut spending in several areas while the democrats suggested more tax increases. This disagreement has lead to a deadlock. No one can agree and no one is taking action.
As usual the media has missed one of the most critical pieces of news in the last several weeks. The chairman of Dagon, the largest credit rating agency in China, came out in an interview with al-Jazeera on Sunday morning stating that it is extremely likely that US debt will be downgraded even further. Over the past year China has downgraded US debt from a high AA+ down to A in two separate downgrades. While most media focused on the S&P’s downgrade, China’s downgrade is far more important. They are the largest foreign buyer of US debt and account for a third of all foreign held debt securities of the US. They are also a major holder of US currency, which means what they think is potentially the most important factor of all when it comes to managing the US debt crisis.
The Chairman of Dagon went on to say “The measures available to them [the US] cannot be effective so they have another way out which is to depreciate the US dollar, to print more money,”
Asked directly if he believed another ratings cut was inevitable, Guan replies: “I think so.”
He goes on to say: “We are continuing to monitor this closely. First of all we need to look at this year’s economic growth and then predict next year’s trends. If in the year 2012 the overall projections are not very good, meaning that the sources of payment – and liabilities – are bad and cannot be changed, or change for the worse, then we will lower the rating once again.”
If China is anywhere close on their projections, QE3 cannot be far around the corner. The US cannot afford to lose a major buyer of their debt like China. While QE may be delayed, it cannot be postponed indefinitely. The inevitable result will be additional printing or “digitizing” of money, which can only have one final outcome, inflation. As a result, precious metals will most certainly do well in the event of QE3 in the short-term, provided that no major dip in the stock market occurs at the same time.
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Josh Renfro
President & Founder
Lone Star Bullion LLC
How does the Italian economy affect gold and silver?
Italy continues to plunge deeper and deeper into an economic pit that it cannot dig itself out of. As of yesterday, Italy’s 10-year bonds rose to 7.25% interest well over the 6.6% that is commonly associated with default or hyperinflation. Several major institutions have come out and said openly that Italy is finished. Barclays stated, “Italy is now mathematically beyond the point of no return.” They stated within the body of their press release that even with significant austerity measures and the most optimistic growth rates, it is impossible for Italy to dig itself out of the hole. In fact, when Italy crossed over the 5.5% mark they crossed the point of no return.
Up to this point, all major economic players have been operating off the principles that certain institutions and countries are too big to fail. Unfortunately, this principle is coming back in the form of an almost impossible situation. For Italy to stay out of the bond markets for the next three years it would require 650-700 Billion euros. The problem is Italy can only request up to 160 Billion euros from the European rescue fund, which barely begins to scratch the surface. Additionally, if Italy requests these funds it will nearly wipe out the entire European rescue fund, which only has 270 billion euros after meeting its obligations to Greece, Portugal, and Ireland. “It’s hard to see that Europe would have the resources to take a country the size of Italy into the bailout program,” Finnish Prime Minister Jyrki Katainen said this week. Europe simply does not have the capabilities to handle bailing out the third largest economy in the Eurozone.
Italian Bailout or Printing Money?
This means that there are two options, which seem most likely. First, that Italy goes to the IMF and a deal is spearheaded by the US, China, and their conglomerates. The problem with this arrangement is that in the end any supposed solution is only temporary and Italy will be back in the exact situation in three years and more than likely several major countries in the Eurozone will experience the exact same kind of debt problems.
The second and final option is that ECB decides to allow the printing of money for the first time since its founding. Ultimately, this will be a deathblow to the superiority of the Euro over many other countries’ currencies, but it may be the only way to secure the Eurozone survival. At this point, Germany is counting the cost of continuing to bailout every desperate country, which seems to be every country in Europe. At some point the cost will be to high, which either means the problem countries have to go or Germany will withdrawal. While printing money will inevitably kill the Euro and the Eurozone countries it is the only way to somewhat evenly bailout these countries. Let me be clear inflation is not even a viable economic option in my book, but it seems to be the only option that will result in the EU surviving.
In the end, neither option is a good economic solution. It simply pushes an inevitable consequence down the road. However, both options are inflationary in nature and both are extremely good for precious metals in the long-term. If you have assets invested in the euro get out while you still can. We are heading towards the eye of the storm.
Progress Report on the Crisis in Europe
For investors attempting to follow the shenanigans in Europe, it can be very difficult at times to understand what exactly is happening and how it will affect the economy as a whole.
The Greek Time Bomb
Since the European Union established a bailout deal for Greece in the early fall. The question is will Greece take the necessary steps in order to receive the bailout funds. Ever since the agreement within the EU was reached, the Greek people have been rioting and protesting against the proposal. The Greek nation has never been known for their willingness to sacrifice and over the past century, the Greek nation has gone through a number of financial crises resulting from their country’s fiscal irresponsibility and lack of desire to work.
As a result, Greece has still not been able to accept the funds, because of the government and people’s unwillingness to put in place severe austerity measures. Consequently, there has been extreme pressure by the European community as well as more conservative members of the Greek government for the resignation of the Greek Prime Minister, George Papandreou. As of last night, Papandreou’s resignation was confirmed. It is believed that former Vice President of the European Central Bank, Lucas Papademos will replace the old prime minister and lead the effort by the Greek government to muscle through the latest bailout plan in parliament.
Unfortunately, Greece is not the only country with economic problems that needs immediate assistance. Italy has its own problems. As of October 28th, 2011 Italy’s 10 years bonds are garnering 6.63%. This is extremely significant because when a country exceeds the 6.6% interest rate on their 10-year bonds it almost always means that the country is heading toward default unless intervention takes place. Italy has now over $2.2 Trillion in outstanding debt, which is more that Spain, Portugal, and Ireland combined. It is possible in the end that Eurozone bailout may occur.
The German Predicament
In the face of all this, Germany is still the main country, which is shouldering the expense for all the other countries’ fiscal irresponsibility. Angela Merkel, the German Chancellor stated after this last G-20 summit that, “The debt crisis will not simply go away,” Mrs. Merkel said. “It will certainly be a decade before we are in a better position.” These are hardly words of optimism coming from the country footing the majority of the bill for the irresponsibility. This brings up an interesting question. How committed is Germany to seeing the crisis through and is it possible for them to leave?
At the start of the crisis, Germany was very committed. They forked out large amounts of funds in a very short period of time. As the crisis has progressed, they have proven less willing. Recently, they were asked by the US, Britain, and France to sell of their 3,000 metric tons of gold reserves to contribute to new bailout funds. Germany firmly refused and stated they wanted to keep their gold reserves untouchable. The final question that has to be asked is if Germany decides they have had enough can they leave the European Union and the Euro and if they do so what will be the impact on EU? In a past ruling of the German Constitutional Court, they stated there were two reasons that Germany could leave the Euro. First, if the EU became an inflationary state and second if Germany became the “defacto bailout country of choice.” Both of these situations are not far from reality at this point, which leads to what will happen if Germany leaves.
In the event that Germany leaves. It is highly likely that the entire European Union will fall apart or at the very minimum the euro and economic union will be small or nonexistent. If Germany left the union, it would be the spark that lights the fuses of a dozen economic bombs that lie across Europe. In the end, the political future of Europe is far from bright and will most likely be the first domino to fall in the upcoming economic recession or depression.
WHY Did the Silver Correction Occur?
This is the question everyone is asking. Silver started out at the beginning of the week in the low $40’s and gold at nearly $1800. From there silver fell to $36 on Thursday, to $31.03 on Friday, and then to $26 in the early hours of Monday morning. Gold followed a similar path ending its fall at $1531 before coming back up to $1600 even. So what caused it?
On Thursday, after a 9% fall in silver and a several percent fall in gold there seemed to be no clear reason for the fall. One factor that partially contributed was the massive fall in the stock market on Wednesday and Thursday. Investors needed to liquidate both gold and silver in order to cover margin calls and other losses they had incurred. However, this reason alone was not sufficient for nearly a 10% fall in silver. On Friday silver fell a whopping 15%, which is the largest single loss I have seen in a single day and gold fell over 5%. At the end of the day, the reason for the fall became apparent. The Chicago Mercantile Exchange(CME) had raised the margin requirements on gold, silver, copper, and platinum by nearly 20%. There is a good degree of speculation and chatter, that seems to suggest that the raising of the margin requirements was leaked before the announcement, which started the massive sell of. Several large institutions in Europe and the US began to dump their entire holdings before the announcement was even made. It is important to note that there is no proof of these allegations, but there is a good degree of circumstantial evidence.
When the market opened on Sunday afternoon the market once again began to fall from its $31.03 close to a low of $26 in the early hours of Monday morning. The Shanghai Gold Exchange hiking margin requirements by 20% largely caused the fall. Once the US markets opened up silver began to climb again and now currently sits at $30 an ounce. Both the Chicago Mercantile Exchange and the Shanghai Gold Exchange have stated that if volatility continues additional intervention may occur. Watching these two exchanges will be key over the next couple of days. This also is presenting an incredible buying opportunity.
Josh Renfro
President & Founder
Lone Star Bullion LLC
originally published at www.livesilverprices.net
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