Fall in Gold & Silver Price Meets "Strong Momentum" in Asian Buying as Germany Votes "Too Little, Too Late" to Support Greece

Gold and Silver Prices gave back an early rally yet again in London trade Thursday lunchtime, trading at $1615 and $30.15 per ounce as Eurozone stock markets rose after the German parliament voted overwhelmingly in favor of extra financial support for Greece and other weaker member states.

The Euro re-touched Wednesday's highs above $1.37 on the currency market, while both German and Greek government bond prices rose, offering new buyers annual yields of 1.99% and 22.88% respectively.

Commodity markets were mixed, meantime, with industrial metals slipping as European Brent crude oil rose over 1% to $105 per barrel.

"The Double Top formation in gold remain our main technical focus," says the latest chart analysis from bullion-bank Scotia Mocatta.

"Only a close back above $1704 would remove the bearish outlook," it reckons, citing a "measured move objective" off this summer's peaks above $1900 per ounce down at $1488 per ounce.

The 8% and 17% drop in US Dollar gold and Silver Prices of the last week continues to jar, however, with the surge in physical investment demand reported by retail bar-and-coin dealers in both Europe and North America, as well as with extended delivery times in London's wholesale bullion markets.

"The blockage is logistical," said a senior precious-metals trader in London to BullionVault this morning, pointing to strong shipping demand from Swiss refineries wanting 400-oz London Gold Bars to convert into kilo-bars for European and especially Asian buyers.

Advanced bookings for silver shipments to China ahead of the New Year are also rising, he said.

"Current [gold] buying momentum is much stronger than the respective comparable period in 2009 and 2010," agrees today's note from Standard Bank's commodities team, "matching levels last seen in August 2010 and February 2011."

This surge in demand "is broad-based throughout Asia," says Standard, and "particularly strong" from India – where next month's Diwali festival is traditionally associated with strong gold jewelry demand – while sales of gold scrap from existing owners "have been sporadic rather than consistent."

On the US Gold Futures market, in contrast – where derivative contracts are typically settled in cash rather than metal – "We expect [this week] will show another and sharper decline in net speculative [demand]," says the latest Precious Metals Weekly from the VM Group for ABN Amro.

The falling Silver Price saw a 10% drop in speculators' "net long" position (of bullish minus bearish bets) even before last week's sell-off, according to VM's data, while as a proportion of all Comex Gold Futures contracts, the "net long" held by non-industry players fell from 40% at the start of August to barely 26% last week.

Yesterday saw the gross tonnage held to back shares in the SPDR Gold Trust – the world's largest Gold ETF – end unchanged at 1242 tonnes, down 0.8% from a week ago and 6% below its peak of June 2010. By value, however, the SPDR Gold Trust's holdings have swelled by more than 22% since then to reach some $64.5 billion today.

"The German parliament is voting for too little, too late," said Fredrik Erixon of the European Centre for International Political Economy in Brussels today, as the vote in Berlin saw strong parliamentary approval for an extra €88 billion in German support – some $118bn – for the European Financial Stability Fund.

Germany will now guarantee up to €211bn ($287bn) in so-called "bail out" loans to weaker member states. Some 40% of respondents to Bloomberg News' latest quarterly survey see at least one member state quitting the 17-nation currency bloc in the next year, and more than 1-in-3 respondents foresee a global recession sparked by the Eurozone's debt crisis.

"You suddenly have a crisis of confidence and trust that's impacting markets and could hurt economies," says one respondent, chief investment officer at Halkin Investments in London, Jean-Yves Chereau.

"Politicians need to move ahead pretty quickly."

Lack of political leadership is a key factor driving Gold Investment, said HSBC precious metals analyst James Steel last week at the London Bullion Market Association's conference in Montreal.

Gold's 10-year rise to date "shows that the political and financial systems the world lives by aren't working," agreed another LBMA Conference speaker, John Fallon of Peer Capital Management.

"Markets won't wait, they need a resolution now – within the next couple of weeks or months," says Barry Eichengreen, professor of economics and political science at the University of California at Berkeley, interviewed in the Washington Post.

"But [Europe's] structural reforms will require several years to complete."

Urging centralized banking control in Europe ahead of fiscal union – because "this is first and foremost a banking crisis" – currency-historian Eichengreen warns that "the costs of allowing or forcing a member state to exit the Euro area would be very, very high.

"If you think a Greek exit would be chaotic, the implications for the rest of the area would be chaos squared."

Source; http://goldnews.bullionvault.com

Apple sets event for new iPhone next week

Kita tengok teknologi terkini plak...

SAN FRANCISCO (MarketWatch) -- Apple Inc. sent out media invitations for a "special event" on Oct. 4 related to the iPhone. No further details were given related to the subject, though Wall Street widely expects the company to unveil its new update to the popular mobile phone at the event, with the actual product expected to go on sale later in the month. Apple AAPL +0.21% will hold the event at its headquarters in Cupertino, Calif., as opposed to its typical venue in San Francisco. Apple shares were up about 0.5% to $405.21 in midday trades on Tuesday.

Amazon debuts new tablet computer

Kita tengok perang 'Tablet' Kejap...

(Reuters) - Amazon.com Inc introduced its eagerly-awaited tablet computer on Wednesday with a $199 price tag, potentially cheap enough to compete with Apple Inc's iPad.

The Kindle Fire tablet has a 7-inch screen, free data storage over the Internet and a new browser called Amazon Silk. It expects shipments to start on November 15.

"These are premium products at non-premium prices," Chief Executive Jeff Bezos said. "We are going to sell millions of these."

It also introduced the Kindle Touch, an e-reader with no buttons and a touch screen starting at $99. It also cut the price of its basic Kindle e-reader to $79 from $99.

Amazon shares rose 3.2 percent in morning trading, while Barnes & Noble, maker of the Nook e-reader, dropped 6.2 percent. Apple shares dipped 0.5 percent to $401.49.

Analysts expected the tablet to be priced around $250, roughly half the price of Apple's dominant iPad, which starts at $499. The Nook Color e-reader costs $249.

Having its own tablet is important for Amazon because the company has amassed a mountain of digital goods and services that could be sold through such a device.

As the world's largest Internet retailer, a tablet might also encourage Amazon customers to shop online for physical products more often.

Breaking into the tablet market will be difficult. Companies including Hewlett Packard, Motorola Mobility, Samsung and Research in Motion, have each launched tablets but none have taken a bite out of Apple's lead.
Apple dominates the North American tablet market, with 80 percent of the 7.5 million units shipped during the second quarter of 2011, according to Strategy Analytics.

Source;  http://www.reuters.com/

Ready for If Money Dies?

The Greater Depression is on, says Doug Casey. Next up, a true Dollar crisis...

SHOULD DOLLAR-DUMPING turn from trickle to flood, watch out. Exploding prices – aka exorbitant inflation – will compound the problems we saw in 2007-2009. Catastrophe will come when everybody realizes that the Dollar is an "IOU nothing".

That's the big picture according to Casey Research chairman Doug Casey. An optimist at heart, however, Doug Casey identifies in this interview with The Gold Report some reasons to be hopeful...

The Gold Report: Are the US government's debt, plus the money creation since the financial crisis began, really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the US, it's going to have truly worldwide effects. The US Dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main US export for many years has been paper Dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee – and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride – but the party's over.

Nobody knows the numbers for sure, but foreign central banks, and individuals outside the US, own US Dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more Dollars to bail out the big financial institutions. At some point, foreign Dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the Dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel – the boom in commodity prices.

Some countries are already trying to get out of Dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation.

TGR: If panic erupts on the US Dollar, would products manufactured in the US become super-cheap or super-expensive?

Doug Casey: They would become super-cheap. Everybody says that devaluing the Dollar will stimulate US industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.

A strong currency is essential for a strong economy. Sure, a strong currency can hurt exporters for a while. But, a strong currency encourages manufacturers to invest in technology, and become more efficient. It rewards savings and results in the growth of capital that's critical for prosperity. A strong currency allows businessmen to buy foreign companies and technologies at bargain prices. It results in a high standard of living for the country, and yields social stability as a bonus. The idea that decreasing the value of currency to stimulate exports is a short-lived, stupid and counterproductive solution to the problem. People seem to forget that while the German currency was rising about sixfold from its level of 1971, and the Japanese Yen about fourfold, those countries became the world's greatest export economies. It didn't happen despite a strong currency, but in large measure because of it.

TGR: Given that the US is the world's biggest consuming nation, wouldn't fleeing the Dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these US consumers?

Doug Casey: That's exactly why the US is in such trouble; it's idiotically focused on consumption, while only production can create prosperity. The world doesn't need to stimulate consumption. This is another canard, because everybody has an infinite desire for goods and services. I know for myself, I'd like not just a car, but 10 Ferraris, a couple of Gulfstreams and 10 houses around the world. So, by myself, I have an infinite desire for goods and services. Multiply that by 7 billion other people. The only way to gratify those desires is by producing enough to trade with other people to give you what you want. When so-called "economists" think the problem is that we don't have enough consumption, that shows that the profession itself is bankrupt. It's actually quite embarrassing.

TGR: But other countries currently produce enough of what the US wants. With US Dollars, that trade won't look good on their side eventually.

Doug Casey: The problem is the US doesn't produce enough in return. The US has been lucky to have a currency that has, so far, been accepted by everybody. But when everybody realizes that the Dollar is an "IOU nothing" on the part of a bankrupt government and a society that doesn't really produce anything anymore, it's going to create a worldwide catastrophe. Those $7 trillion held by foreigners are going to become instant hot potatoes.

TGR: Considering what you said a moment ago, that the world doesn't need to stimulate consumption, you must find some irony in the Obama administration's plan to stimulate consumption again in the US as a way to spur some economic growth.

Doug Casey: I'm afraid that after being counseled by the fools that surround him, Obama talking about economics is like the blind leading the doubly dismembered. They want to spend $450 billion trying to create new jobs – but these are government jobs, where you have people digging holes during the day and filling them up at night to create the appearance of employment. No government has any idea what the market really wants and needs. There should be zero government involvement in this. The government cannot and should not even try to create jobs. If Obama wants to stimulate the economy, he can decrease the size of the government. I would say a 90% reduction would be a good starting figure.

TGR: But that will create even more unemployment. That's one of the big concerns. States laying off employees could increase unemployment even more.

Doug Casey: It is wonderful that states are starting to lay off employees. Once they lose their state jobs, which suck wealth from taxpayers, maybe those people can find real, productive jobs providing goods and services that people actually want and will pay for voluntarily. So I'd argue that getting rid of state employees is essential to a sound recovery plan.

TGR: You warned early on in the 2008-2009 economic crisis that it would really be more of a hurricane. In the last year or so, we've been in the eye of the hurricane and there's more turmoil to come. Will the other side of the storm be worse than the first? And given the recent economic news, do you think we have moved out of that eye?

Doug Casey: Yes, I think we are moving out of the eye and going into the other side of the storm. This storm will be much more severe because we haven't solved any of the problems that caused the hurricane in the first place. The fact that governments all over the world have created trillions of currency units has only aggravated those problems. Now, I expect exploding prices to compound the problems that we saw back in 2007, 2008 and 2009. That will devastate the prudent people in society who saved money. They saved it in the form of currency, and wiping out their savings will be catastrophic.

TGR: Will this affect only North America and Europe?

Doug Casey: Mostly North America and Europe, but it's going to be very serious in Japan, too. It could be even more disastrous in China. The Chinese real estate market bubble is very inflated, driven by the lending of Chinese banks that won't be able to recover their loans. They will all go bankrupt, taking out the Chinese populace's savings with them. At the same time, those who own real estate will find it worth vastly less than what they paid for it. Those problems will create social disruptions in China, leading to riots, perhaps even revolution, and who-knows-what. The fallout is going to be terrible.

TGR: Many pundits and economists still project growth in China, albeit at a lower rate, and anticipate further expansion of the middle class.

Doug Casey: The 21st century will be the Chinese century, but the distortions and misallocations of capital that have occurred over the last 30 years – notwithstanding the truly phenomenal progress the country has made – are serious and have to be washed out. I am a huge bull on China for lots of reasons, but I am bullish for the long run. I think it is going to go through the meat grinder over the next 10 years. I don't know how it will come out; maybe China will break up into five or six different countries. Actually, that would be a good thing. Most of the world's nation-states are artificially constructed and too big to be manageable as political entities.

TGR: Your outlook on China fits right in with something you've been saying for years – about this being the "Greater Depression," which is also the topic of your upcoming presentation at the sold-out Casey Research/Sprott Inc. "When Money Dies" summit next month in Phoenix. Your opening general session talk is entitled, "The Greater Depression Is Now". We are now four years into it, based on your 2007 start date.

Doug Casey: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the US anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."

Net savings shows that you're living within your means and putting aside capital for the future. In the US, people have been living above their means for many years – that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the US has been doing.

TGR: So, how long will this Greater Depression last?

Doug Casey: It doesn't have to last long at all. It could be quite brief if the US government, which is basically the root cause, retrenches vastly in size and defaults on the national debt, which is essentially an enormous mortgage, an albatross around the neck of the next several generations of Americans. The debt will be defaulted on one way or another, almost certainly through inflation. I simply advocate an honest, overt default; that would serve to punish those who, by lending to the government, have financed its depredations. Distortions and misallocations of capital that have been cranked into the economy for many years need to be liquidated. It could be unpleasant but brief. The government is likely to do just the opposite, however. It will try to prop it up further and make it worse – compounding the problem by expanding the wars. So, it could last a very long time. In that sense, I'm not optimistic at all. I think there is little cause for optimism.

On the other hand, I'm generally optimistic for the future. There are only two causes for optimism. First, smart individuals all over the world continue, as individuals, to produce more than they consume and try to save the difference. That will build capital, which is of critical importance. They should just save by holding paper currency. Second, expanding and compounding technology will increase the standard of living. Remember that there are more scientists and engineers alive today than have lived in all previous history combined. Those two factors countervail the government stupidity around us. Whether they will be overwhelmed and washed away by a tsunami of statism and collectivism, I don't know.

TGR: You say that the US government is the root cause of this problem. Isn't that putting too much blame for a worldwide problem on one nation?

Doug Casey: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the US is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the US currency has been accepted globally. The US Dollar is, in effect, the reserve that backs all the other currencies in the world. That is why the US government has been the most destructive from an economic point of view. Furthermore, military spending – which in the US equals that of all the other militaries in the world combined – is purely destructive. It serves no useful economic purpose at all. The military is no longer "defending" anything – least of all liberty. It's actively creating enemies and provoking conflict. So, yes, I think the US government is actually the most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?

Doug Casey: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net recipients of state largesse. The US has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the US government is fairly efficient. And, unlike Argentina, the US is rapidly turning into a police state.

Electing a Republican might be even worse, though. With the exception of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The US government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12% – and I'm afraid they'll have to go even higher than that – it would add another $1.5 trillion just in interest payments.

I absolutely see no way out without a collapse of the US currency and a total reordering of the US economy.

TGR: When Money Dies, the title of your summit, implies some return to a gold standard. How do you see that playing out?

Doug Casey: Nothing is certain, but when the Dollar disappears – and it's going to reach its intrinsic value soon – what are people going to use as money? Will we gin up another fiat currency like the Euro? The Euro is likely to fail before the Dollar. My suspicion is that people will want to go back to gold. It's not because gold is anything magical, but simply the one of the 92 naturally occurring elements that – for the same reasons that make aluminum good for planes and iron good for steel girders – is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries – places that don't have large gold reserves, such as China, India, Korea, Russia, even Mexico – have been buying the stuff in size.

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground – 6 billion ounces? Maybe $11 trillion worth? But it's only a fraction of the US GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?

Doug Casey: In terms of today's Dollars, gold should probably be a lot higher than it is. I don't know what the number will be, because a lot of those Dollars will disappear in bankruptcies; they will dry up and blow away. It's like a real estate development that was worth $1 billion on somebody's books; when it fails, that's $1 billion destroyed. It's a question of the battle of inflation (with the government creating Dollars to prop things up) against deflation (where businesses fail and wipe out Dollars). But put it this way: the US Government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz. gold. And that doesn't count Dollars in the US itself.

I'm a bargain hunter and a bottom fisher, and bought most of my gold at vastly lower prices. But I think gold is going much higher because most people still barely even know that the stuff exists. As inflation picks up, they are going to want to get rid of these Dollars – but what other monetary commodity can they turn to? So, gold is going higher. I'm still accumulating gold.

TGR: You said that the storm as we emerge from the eye of the hurricane will be worse than it was on the other side. If they don't own gold, how do investors protect themselves?

Doug Casey: It's very hard to be an investor in today's world because an investor is someone who allocates capital in a way to create new wealth. That is not easy in today's highly taxed and regulated economy. It's late in the day, but not too late, to Buy Gold, silver and other commodities. Productive assets are good to own. Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but the stock market is quite overvalued in my opinion, so that's not the best option right now.

In addition to trying to build personal holdings of gold and, to a lesser degree, silver, I think people should learn to be speculators. This is not to be confused with gamblers, who rely on random chances. Speculators position themselves to take advantage of politically caused distortions in the marketplace. In a true free market society, you would see very few speculators because there would be few such distortions. But regulations, taxes and currency inflations are likely to keep markets very volatile. Good speculators will position themselves to take advantage of bubbles, and identify bubbles that have been blown to their maximum and are about to deflate.

Government actions are going to force people to become speculators, whether they like it or not. Most won't like it, and very few will be good at it.

TGR: What bubbles might speculators look to exploit?

Doug Casey: I'd say the world's biggest bubble is real estate in China, but real estate bubbles are just starting to deflate elsewhere, too – in Australia and Canada, for example. It's relatively hard to short real estate, of course. Shorting bank stocks is an indirect way to play it. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital because:

• Interest rates are artificially low, and as interest rates rise – which they must – bonds will fall;
• Bonds are denominated in currencies, and most currencies, let's say Dollars, are going to lose a lot of value;
• The credit risk of most bonds, certainly those issued by governments, is high.

On the long side, mining stocks are very cheap relative to the price of gold right now. I'd say there's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing.

TGR: Technology was one of the two areas of optimism you mentioned earlier. Do you see a bubble forming there?

Doug Casey: You have a point, but I'm not sure you can talk about technology stocks as a whole; technology is too variegated, too vast a field. Although, I've long been a huge believer in nanotech, which is likely to change the world as we know it. With gold stocks, however, you can jump into a discrete universe, that's likely to become a mania.

TGR: Thank you for the tips, Doug, and as always, for your thoughtful insights.

Source; http://goldnews.bullionvault.com

Gold traders take note: This year, Diwali begins on Oct. 26

The cruelest month for gold

Commentary: October, not September, typically bad for gold

 CHAPEL HILL, N.C. (MarketWatch) — Brace yourself, gold traders: October is right around the corner.

And it is the worst month of the calendar for gold.

To be sure, most gold traders already have their hands full dealing with September, which has been a sobering one for the yellow metal. Even after Tuesday’s 3.6% rally, bullion is down 10% for the month. 

They probably can’t wait for the month to be over. 

But consider October’s track record. Over the last three decades, the London PM Fixing Price in U.S. dollars terms has lost an average of 0.9% during October. That compares to a 0.6% gain in all other months. That difference of 1.5 percentage points is statistically significant. 

(By the way, I didn’t go back further in the historical record because it was only in the mid 1970s that it became legal for U.S. citizens to own gold.)

 What accounts for gold’s seasonal weakness? One theory focuses on gold’s historical tendency to move inversely to stocks. Since October is often when stocks hit a tradable low and begin a strong rally, that’s when money tends to flow out of gold into stocks. 

Though this theory doesn’t fit the facts perfectly, it at least is consistent with what tends to happen in September, a month that on average is bad for stocks. And, sure enough, it tends to be a good one for gold. In fact, just as September is the worst month of the calendar for stocks, it is the best one for bullion. 

One place where the theory starts to break down is in November and December, which tend to be strong ones for both gold and stocks. But, according to a study from Ned Davis Research, there are other seasonal factors that may help to explain gold’s strength in those later months. 

Those other factors trace to jewelry demand in India. Ned Davis senior equity analyst John LaForge explains that, even with all the speculative interest in investing in gold, “roughly 50% of gold demand still comes from jewelry. Over half of this comes from India and China. While China is fast becoming a large player in the jewelry market, India has been the primary driver for years.” 

And it turns out that Indian demand for gold follows a seasonal pattern of its own. One period in which it begins to pick up is around Diwali, a five-day festival which begins at some point during the mid-October-to-mid-November time frame. Furthermore, this is when many Indian couples schedule their weddings. 

LaForge analyzed gold’s price behavior in the month before and after the last 10 Diwali festivals, and found that gold typically carves out some sort of a tradable low right around the start of Diwali. 

Gold traders take note: This year, Diwali begins on Oct. 26. 

Source;  http://www.marketwatch.com

Tough Going for Gold, and It's Looking Tougher

October is the worst calendar month on average for gold, according to MarketWatch columnist Mark Hulbert, who says there are some seasonal winds blowing against the yellow metal. But watch for those weddings and festivals in India. Laura Mandaro reports.

See; http://www.marketwatch.com/video/asset/tough-going-for-gold-and-it-looking-tougher/144936E6-464E-435B-82B5-E0FA0DB55027

Source; http://www.marketwatch.com

Operation Twist – Dumber than Dumb

The Fed's new move will do little good, and could make things a whole lot worse... 

OPERATION TWIST is a plan so dumb you have to have to Ph.D. to believe it will do any good. Quantitative easing was dumb enough. This is dumber, writes Chris Mayer for the Daily Reckoning.

The Federal Reserve will buy $400 billion of long-dated Treasuries, financed by selling bonds with three years to go or less. The idea is to try to drive long-term rates lower, which the Fed thinks will help the mortgage market.

The Fed unveiled its crackpot scheme on Wednesday and the market quickly registered a firm opinion, as you see in the daily chart of the S&P500:

 

Yesterday was no better, with the stock market ending the day deeply in the red.

Aren't you glad we have the Federal Reserve to run to our rescue? What's the old saying, "with friends like these..."?

The market tanked presumably because of the Federal Reserve's gloomy prognosis for the economy. Housing is "depressed." (Yup, we knew that.) Unemployment will remain "elevated." (Unfortunately, not so for central bankers and their legion of economists). Growth "remains slow." (With the private sector under siege, it's amazing we've done as well as we have.)

Why people still take the Fed's forecasts seriously is beyond me. Here is an organization that has been behind on calling every turn and yet investors still parse Fed statements as if going over the words uttered by a prophet. I can only chalk up such foolishness to a persistent belief in oracles.

But back to Operation Dumber. It won't work. It will make things worse, much worse, than they would've been. Let's look at the handiwork of the Fed's playbook so far.

So far, we've had 33 months of near zero interest rates. And the Fed has purchased $2.3 trillion worth of debt in two rounds of "quantitative easing."

And...what?

The economy, by the Fed's own admission, is in poor shape. So, as if possessed with a kind of insanity, the Fed says "Let's do more of the same." And hence, Operation Dumber was born. Another $400 billion down the tubes. The economy won't go anywhere.

First, it's doubtful that lower long-term interest rates will push mortgage rates much lower. Mortgage rates have not fallen in step with the ten-year treasury as it often does. Investors are drawing a line. You have to remember, to make a mortgage, someone has to be willing to hold the paper. The market is saying that 3-4% is about the floor.

Think of it this way: If the Fed could drop interest rates to zero, do you think mortgage rates would follow? There has to be some profit for the lender, some incentive for the investor.

Second, I don't think lower rates will help much, because much of the US mortgage market is in trouble. 

Five years into the housing meltdown, 28% of US mortgages are underwater. That is, the amount owed is more than the home is worth. About 7% are delinquent, and 10% have been foreclosed on. That's 45% of the country's mortgages in some state of trouble.

So, low interest rates are not going to help the mortgages that are underwater. Those people can't refinance. They need to put more money in their homes or they need to walk away and let the bank deal with the problem. Ditto the rest of the troubled mortgage market.

This is, of course, the market's solution, which government people and debtors abhor. They'd rather take it out of the savers and the old people. Yeah, let's stiff grandma. She's trying to live off her life's savings by putting her money in bank CDs to earn next to nothing. Let's make it tougher on her.

People are so eager to talk about the good of low interest rates, they forget about the bad. But the consequences are wide-reaching. Besides making it tough on savers, a climate of low-interest rates will force people to take greater risks in an effort to make something on their money.

Artificially low interest rates also send false signals to markets. It distorts pricing patterns and so will bring about a lot of mistakes that will only become apparent later. (Think housing, where artificially inflated housing prices and easy money led to a huge but phony boom in housing, the extent of which we see clearly now and are still suffering from).

What about the banks? The initial read in the papers is that this will be bad for banks. It will make lending less profitable by squeezing the difference between long-term and short-term rates — a source of bank profits.

But, thinking about it differently, Operation Dumber is just another gift for the banks. QB Partners' Paul Brodsky and Lee Quaintance wrote in a letter to shareholders yesterday: "This is a move to help recapitalize banks under the guise of supporting the housing market... This is all about the banks income statements."

How so? Well, QB explains that the Fed will basically buy long-duration Treasury paper from the Banks, handing them nice gains on those securities. (Remember, as rates fall, the value of the paper goes up. So banks have big gains in long-duration Treasuries). Banks get an increase in short-duration Treasuries. Net-net, they are in a less vulnerable position and will show a boost in profits.

Regardless of all that, it seems clear to me that Operation Dumber will have little positive effect on the economy. At some point, we will learn that the only way out of this economic morass is to face the painful, yet common sense adjustments, needed. It's really simple. People need to save more money, pay down debts and spend less. The nation needs to get its financial house in order. The mistakes of the prior boom need to be liquidated.

If the Feds and the government would get out of the way, we'd have a quick recession and get on with life. Instead, here we are: nearly 5 years after the bubble popped, 33 months of zero interest policy and trillions of Dollars of wasted government "stimulus" spending and Fed money printing — and still suffering from high unemployment and little economic growth.

So, what to do?

As investors, you stand pat. Or you use the opportunity to pick-up a few things. As I've said before, the time to prepare for times like now is before they happen. I don't know what the market will do from here. No one does.

Source; http://goldnews.bullionvault.com

Gold jumps nearly $70 as Europe equities rally

MADRID (MarketWatch) -- Gold and silver futures shot higher on European trading hours on Tuesday, extending gains in Asia, as Europe stocks rallied on hopes officials were making headway in battling the European sovereign debt crisis. December gold futures GC1Z +4.26% rose $68 to $1,662.80 an ounce, while silver futures for December delivery SI1Z +7.02% gained $2.06 to $32.05 an ounce. December copper HG1Z +2.25% rose 8 cents to $3.36 a pound, while platimum for October delivery PL1V +2.41% rose $38.10 to $1,585 an ounce and palladium for December delivery PA1Z +3.60% rose $22.60 to $650 an ounce.

Source; http://www.marketwatch.com

Gold, silver futures jump sharply

LOS ANGELES (MarketWatch) — Gold and silver futures rose sharply in early Tuesday electronic trading, moving in tandem with stocks as hope rose for a resolution to the European debt crisis. 

Buffett on a Berkshire buying spree

Berkshire Hathaway's board approves the first stock buyback since 2000.

In early Tuesday trading hours in Asia, benchmark Comex gold for December delivery GC1Z +4.15%   was up $36.80 or 2.3% at $1,631.60 an ounce, with the gains coming after reports of a planned leveraged increase in funds available via the European Financial Stability Fund to shore up that region’s fiscal situation. 

December silver SI1Z +6.50%  made an even sharper advance, adding $1.04 or 3.5% to trade at $31.02 an ounce. 

The metals’ advance coincided with an easing in the U.S. dollar and a rally in Asian share markets. Read more on Asian stock moves. 

 

Concerns of a possible global liquidity crunch had sent gold futures plunging 2.7% and silver down a milder 0.4% in Monday trading on the Comex division of the New York Mercantile Exchange. 

Gold’s Monday settlement was the lowest since late July.

 

Source;  http://www.marketwatch.com

Gold a “Victim of Its Own Success”

In light of this morning’s sell-off in gold, coupled with last week’s substantial decline, UBS analyst Edel Tully explained her reasoning for the yellow metal’s weakness in a note to clients.

“Gold is one of the few assets that remains in positive territory this year, in a sense it is one of the last assets standing, and because of this as investors head for cash they sell the assets that have performed,” Tully wrote.

“Essentially gold is a victim of its own success as liquidity trumps.”

Nic Brown, a commodities strategist at Natixis, provided his thoughts as well this morning on the move lower in the gold price.  ”The rise in volatility taking place in the gold price was clearly an indication that gold was no longer a low-risk asset,” he wrote. “So there are a few signs there that would have given you pause for thought, but inevitably when the move happens, everyone is taken a little bit by surprise.”

Brown went on to say that “I would suggest that part of what is happening is a collective move away from commodities by investors. The fact that there is carnage going on across the commodities spectrum indicates there are a fair few investors who are getting cold feet at this stage and that has hit some precious metals disproportionately.”

Source; http://www.goldalert.com

The US Dollar: an IOU Nothing

Why the Dollar Gold Price "should probably be a lot higher than it is"...

THE WORLD will hit catastrophe when everybody realizes that the Dollar is an "IOU nothing", according to Casey Research Chairman Doug Casey. 

But an optimist at heart, Doug also identifies some reasons to be hopeful in this interview with The Gold Report.

The Gold Report: You've been talking about two ticking time bombs. One is the trillions of Dollars owned outside the US that investors could dump if they lose confidence. And the other is the trillions of Dollars within the US that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the US, it's going to have truly worldwide effects. The US Dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main US export for many years has been paper Dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee — and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride — but the party's over.

Nobody knows the numbers for sure, but foreign central banks, and individuals outside the US, own US Dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more Dollars to bail out the big financial institutions. At some point, foreign Dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the Dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel — the boom in commodity prices.

Some countries are already trying to get out of Dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation. 

TGR: If panic erupts on the US Dollar, would products manufactured in the US become super-cheap or super-expensive? 

Doug Casey: They would become super-cheap. Everybody says that devaluing the Dollar will stimulate US industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.

A strong currency is essential for a strong economy. Sure, a strong currency can hurt exporters for a while. But, a strong currency encourages manufacturers to invest in technology, and become more efficient. It rewards savings and results in the growth of capital that's critical for prosperity. A strong currency allows businessmen to buy foreign companies and technologies at bargain prices. It results in a high standard of living for the country, and yields social stability as a bonus. 

The idea that decreasing the value of currency to stimulate exports is a short-lived, stupid and counterproductive solution to the problem. People seem to forget that while the German currency was rising about sixfold from its level of 1971, and the Japanese yen about fourfold, those countries became the world's greatest export economies. It didn't happen despite a strong currency, but in large measure because of it.

TGR: Given that the US is the world's biggest consuming nation, wouldn't fleeing the Dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these US consumers?

Doug Casey: That's exactly why the US is in such trouble; it's idiotically focused on consumption, while only production can create prosperity. The world doesn't need to stimulate consumption. This is another canard, because everybody has an infinite desire for goods and services. I know for myself, I'd like not just a car, but 10 Ferraris, a couple of Gulfstreams and 10 houses around the world. 

So, by myself, I have an infinite desire for goods and services. Multiply that by 7 billion other people. The only way to gratify those desires is by producing enough to trade with other people to give you what you want. When so-called "economists" think the problem is that we don't have enough consumption, that shows that the profession itself is bankrupt. It's actually quite embarrassing.

TGR: But other countries currently produce enough of what the US wants. With US Dollars, that trade won't look good on their side eventually.

Doug Casey: The problem is the US doesn't produce enough in return. The US has been lucky to have a currency that has, so far, been accepted by everybody. But when everybody realizes that the Dollar is an "IOU nothing" on the part of a bankrupt government and a society that doesn't really produce anything anymore, it's going to create a worldwide catastrophe. Those $7 trillion held by foreigners are going to become instant hot potatoes.

TGR: Considering what you said a moment ago, that the world doesn't need to stimulate consumption, you must find some irony in the Obama administration's plan to stimulate consumption again in the US as a way to spur some economic growth.

Doug Casey: I'm afraid that after being counseled by the fools that surround him, Obama talking about economics is like the blind leading the doubly dismembered. They want to spend $450 billion trying to create new jobs — but these are government jobs, where you have people digging holes during the day and filling them up at night to create the appearance of employment. No government has any idea what the market really wants and needs. There should be zero government involvement in this. The government cannot and should not even try to create jobs. If Obama wants to stimulate the economy, he can decrease the size of the government. I would say a 90% reduction would be a good starting figure.

TGR: But that will create even more unemployment. That's one of the big concerns. States laying off employees could increase unemployment even more.

Doug Casey: It is wonderful that states are starting to lay off employees. Once they lose their state jobs, which suck wealth from taxpayers, maybe those people can find real, productive jobs providing goods and services that people actually want and will pay for voluntarily. So I'd argue that getting rid of state employees is essential to a sound recovery plan.

TGR: You warned early on in the 2008–2009 economic crisis that it would really be more of a hurricane. In the last year or so, we've been in the eye of the hurricane and there's more turmoil to come. Will the other side of the storm be worse than the first? And given the recent economic news, do you think we have moved out of that eye?

Doug Casey: Yes, I think we are moving out of the eye and going into the other side of the storm. This storm will be much more severe because we haven't solved any of the problems that caused the hurricane in the first place. The fact that governments all over the world have created trillions of currency units has only aggravated those problems. Now, I expect exploding prices to compound the problems that we saw back in 2007, 2008 and 2009. That will devastate the prudent people in society who saved money. They saved it in the form of currency, and wiping out their savings will be catastrophic.

TGR: Will this affect only North America and Europe?

Doug Casey: Mostly North America and Europe, but it's going to be very serious in Japan, too. It could be even more disastrous in China. The Chinese real estate market bubble is very inflated, driven by the lending of Chinese banks that won't be able to recover their loans. They will all go bankrupt, taking out the Chinese populace's savings with them. At the same time, those who own real estate will find it worth vastly less than what they paid for it. Those problems will create social disruptions in China, leading to riots, perhaps even revolution, and who-knows-what. The fallout is going to be terrible.

TGR: Many pundits and economists still project growth in China, albeit at a lower rate, and anticipate further expansion of the middle class.

Doug Casey: The 21st century will be the Chinese century, but the distortions and misallocations of capital that have occurred over the last 30 years — notwithstanding the truly phenomenal progress the country has made — are serious and have to be washed out. I am a huge bull on China for lots of reasons, but I am bullish for the long run. I think it is going to go through the meat grinder over the next 10 years. I don't know how it will come out; maybe China will break up into five or six different countries. Actually, that would be a good thing. Most of the world's nation-states are artificially constructed and too big to be manageable as political entities.

TGR: Your outlook on China fits right in with something you've been saying for years — about this being the "Greater Depression." We are now four years into it, based on your 2007 start date.

Doug Casey: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the US anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."

Net savings shows that you're living within your means and putting aside capital for the future. In the US, people have been living above their means for many years—that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the US has been doing.

TGR: So, how long will this Greater Depression last?

Doug Casey: It doesn't have to last long at all. It could be quite brief if the US government, which is basically the root cause, retrenches vastly in size and defaults on the national debt, which is essentially an enormous mortgage, an albatross around the neck of the next several generations of Americans. The debt will be defaulted on one way or another, almost certainly through inflation. I simply advocate an honest, overt default; that would serve to punish those who, by lending to the government, have financed its depredations. 

Distortions and misallocations of capital that have been cranked into the economy for many years need to be liquidated. It could be unpleasant but brief. The government is likely to do just the opposite, however. It will try to prop it up further and make it worse—compounding the problem by expanding the wars. So, it could last a very long time. In that sense, I'm not optimistic at all. I think there is little cause for optimism.

On the other hand, I'm generally optimistic for the future. There are only two causes for optimism. First, smart individuals all over the world continue, as individuals, to produce more than they consume and try to save the difference. That will build capital, which is of critical importance. They should just save by holding paper currency. Second, expanding and compounding technology will increase the standard of living. 

Remember that there are more scientists and engineers alive today than have lived in all previous history combined. Those two factors countervail the government stupidity around us. Whether they will be overwhelmed and washed away by a tsunami of statism and collectivism, I don't know.

TGR: You say that the US government is the root cause of this problem. Isn't that putting too much blame for a worldwide problem on one nation?

Doug Casey: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the US is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the US currency has been accepted globally. The US Dollar is, in effect, the reserve that backs all the other currencies in the world. 

That is why the US government has been the most destructive from an economic point of view. Furthermore, military spending—which in the US equals that of all the other militaries in the world combined—is purely destructive. It serves no useful economic purpose at all. The military is no longer "defending" anything—least of all liberty. It's actively creating enemies and provoking conflict. So, yes, I think the US government is actually the most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?

Doug Casey: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net recipients of state largesse. The US has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the US government is fairly efficient. And, unlike Argentina, the US is rapidly turning into a police state. 

Electing a Republican might be even worse, though. With the exception of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The US government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. 

And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12% — and I'm afraid they'll have to go even higher than that — it would add another $1.5 trillion just in interest payments.

I absolutely see no way out without a collapse of the US currency and a total reordering of the US economy.

TGR: When Money Dies, the title of your summit, implies some return to a gold standard. How do you see that playing out?

Doug Casey: Nothing is certain, but when the Dollar disappears—and it's going to reach its intrinsic value soon — what are people going to use as money? Will we gin up another fiat currency like the Euro? The Euro is likely to fail before the Dollar. My suspicion is that people will want to go back to gold. It's not because gold is anything magical, but simply the one of the 92 naturally occurring elements that — for the same reasons that make aluminum good for planes and iron good for steel girders—is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries — places that don't have large gold reserves, such as China, India, Korea, Russia, even Mexico — have been buying the stuff in size. 

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground—6 billion ounces? Maybe $11 trillion worth? But it's only a fraction of the US GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?

Doug Casey: In terms of today's Dollars, gold should probably be a lot higher than it is. I don't know what the number will be, because a lot of those Dollars will disappear in bankruptcies; they will dry up and blow away. It's like a real estate development that was worth $1 billion on somebody's books; when it fails, that's $1 billion destroyed. It's a question of the battle of inflation (with the government creating Dollars to prop things up) against deflation (where businesses fail and wipe out Dollars). But put it this way: the US Government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz. gold. And that doesn't count Dollars in the US itself. 

I'm a bargain hunter and a bottom fisher, and bought most of my gold at vastly lower prices. But I think gold is going much higher because most people still barely even know that the stuff exists. As inflation picks up, they are going to want to get rid of these Dollars—but what other monetary commodity can they turn to? So, gold is going higher. I'm still accumulating gold.

TGR: You said that the storm as we emerge from the eye of the hurricane will be worse than it was on the other side. If they don't own gold, how do investors protect themselves?

Doug Casey: It's very hard to be an investor in today's world because an investor is someone who allocates capital in a way to create new wealth. That is not easy in today's highly taxed and regulated economy. It's late in the day, but not too late, to Buy Gold, silver and other commodities. Productive assets are good to own. Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but the stock market is quite overvalued in my opinion, so that's not the best option right now. 

In addition to trying to build personal holdings of gold and, to a lesser degree, silver, I think people should learn to be speculators. This is not to be confused with gamblers, who rely on random chances. Speculators position themselves to take advantage of politically caused distortions in the marketplace. In a true free market society, you would see very few speculators because there would be few such distortions. But regulations, taxes and currency inflations are likely to keep markets very volatile. Good speculators will position themselves to take advantage of bubbles, and identify bubbles that have been blown to their maximum and are about to deflate.

Government actions are going to force people to become speculators, whether they like it or not. Most won't like it, and very few will be good at it.

TGR: What bubbles might speculators look to exploit?

Doug Casey: I'd say the world's biggest bubble is real estate in China, but real estate bubbles are just starting to deflate elsewhere, too—in Australia and Canada, for example. It's relatively hard to short real estate, of course. Shorting bank stocks is an indirect way to play it. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital because:

1. Interest rates are artificially low, and as interest rates rise—which they must—bonds will fall.
2. Bonds are denominated in currencies, and most currencies, let's say Dollars, are going to lose a lot of value.
3. The credit risk of most bonds, certainly those issued by governments, is high.

On the long side, mining stocks are very cheap relative to the price of gold right now. I'd say there's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing.

TGR: Technology was one of the two areas of optimism you mentioned earlier. Do you see a bubble forming there?

Doug Casey: You have a point, but I'm not sure you can talk about technology stocks as a whole; technology is too variegated, too vast a field. Although, I've long been a huge believer in nanotech, which is likely to change the world as we know it. With gold stocks, however, you can jump into a discrete universe, that's likely to become a mania.

TGR: Thank you for the tips, Doug, and as always, for your thoughtful insights.

Source; http://goldnews.bullionvault.com

Sebab Mengapa Emas Turun???

The Two Main Reasons the Markets Fell Apart

 IT HAS BEEN another hectic week for world markets. Gold Prices have been hammered – and Silver Prices have had it even worse, writes Ben Traynor at BullionVault.

Stocks and commodities have also suffered – while US Treasury bonds have had to put up with Ben Bernanke 'Twisting' them.

The real story, however, is not about gold and silver...or stocks for that matter. The real story features two lead characters: debt and growth. The world economy has too much of the former, and not enough of the latter to pay it off with.

Four news stories – all of which appeared on Friday 23 September – provide a worrying snapshot of where we are in this crisis:

• The Financial Times reports on UK 'mortgage prisoners' – homeowners unable to move because their houses are worth less than what they owe on them, and who are reliant on record low interest rates to make ends meet
• US money market funds are dramatically cutting their exposure to the European banking sector
• The European Union says it will speed up the recapitalization of troubled European banks
• The central bank governors and finance ministers of G20 ministers issue a joint statement committing "to take all necessary actions to preserve the stability of banking systems and financial markets as required."

So far in this crisis, governments and central banks have managed to stave off a depression. They've done so by undertaking extraordinary measures – record low interest rates, quantitative easing, buying up toxic assets, nationalizing banks, guaranteeing bank deposits etc. The aim was to ward off a debt-deflation spiral and a banking crisis. 

We had a recession, and some banks have failed, but the great systemic financial and economic crash has not materialized. Yet.

Policymakers avoided catastrophe in 2008 by transferring private sector debt to the public sector. Some of this was done directly – buying stakes in banks or relieving them of their toxic assets, for example. Other methods were (marginally) more subtle, such as stimulus programs aimed at stirring up some activity in the economic petri dish.

Of course, we all know the governments that undertook these policies didn't just have the money for them lying around. And with recession looming they were hardly likely to raise it from taxation. So, in time-honored fashion, they borrowed it – spending tomorrow's wealth today. In this way, the proceeds of future growth were appropriated for the needs of the present – while the liability for current debt was pushed into the future:

The solution policymakers came up with was to construct a two-way debt-wealth transfer mechanism. For this solution to work, it relies on their being enough future wealth against which to borrow. In other words, you need sustainable growth. It looks increasingly likely, however, that the world's major economies are heading for severe slowdown – with some heading back into recession.

Take China – a byword for miraculous rates of economic growth. Preliminary figures published by HSBC this week suggest China's manufacturing sector – its economic engine for three decades – contracted this month. Beijing-based economist Michael Pettis argues that China's economy will have to rebalance its economy away from government-directed investment and towards private consumption – a bumpy process that could see growth rates more than halve.

Fears are also mounting that China will have its own subprime crisis in housing, and that a bubble in local government debt is set to burst.

As for the west, the debt crisis in the Eurozone is being very well documented right now (see virtually any newspaper this week for further info, or read BullionVault's very own daily market reports).

Of deeper concern, though, is that the Eurozone – along with its economic powerhouse, Germany – also looks to be heading for recession. Preliminary data this week show both the service and manufacturing sectors are slowing in Germany – and contracting in the Eurozone as whole.

German GDP growth dropped to 2.7% year-on-year in the second quarter – a drop from 4.9% in Q1. 

 

Then we have the US, where GDP grew at an annual rate of 1.0% in the second quarter. One of America's great strengths, compared to Europe, may turn out to be its most dangerous flaw. European leaders have been criticized for their slow response to the crisis. The US, as a single nation, has shown itself able to act more decisively.

But swift, decisive action is only an advantage if you're doing the right thing. There's a growing sense that, actually, maybe the people in charge, well, aren't. They themselves don't seem to be sure.

The Bank of England's latest Quarterly Bulletin, which came out this week, contained a paper that looked at how effective quantitative easing has been in Britain. In amongst the various charts and tables are the following cautious paragraphs:

There is considerable uncertainty around the precise magnitude of the impact.

Translation: we don't know if it worked

It is difficult to measure directly the effects of monetary policy measures such as QE and so estimates of those effects are highly uncertain.

Translation: we can't know if it worked

The wider macroeconomic effects of QE are difficult to quantify.

Translation: we don't know what else it might have done

There's nothing inherently wrong with these statements – the Bank's economists are being honest. But these caveats illustrate a fundamental truth about the policy response to this crisis: no one really knows what its effects are.

This is something the Federal Reserve noted this week, when on Wednesday it announced its Operation Twist policy – and announcement that was followed by two days of market turmoil:

The maturity extension program will provide additional stimulus to support the economic recovery but the effect is difficult to estimate precisely.

It's difficult to predict because there's a very realistic chance it won't do anything at all for the economy. Growth could therefore stay mired at 'stall speed' – or even slip into reverse. 

Without growth, the debt-wealth transfer mechanism breaks down:

This, in fact, may be what we're seeing right now – and why the markets have had such a torrid time lately. We are watching a patched-together, hastily constructed machine fall apart in front of our eyes.

What will happen next? How will policymakers deal with debt if they can't rely on growth? And how might gold owners respond to all this turmoil? Find out more in Part Two next week...

Source; http://goldnews.bullionvault.com

Fed “Not Out of Ammo,” But No “High Impact Weaponry” Left

Following the Federal Reserve’s Operation Twist announcement yesterday, former Fed Vice Chairman Alan Blinder provided his thoughts on the new plan and the potential for additional monetary policy tools at the Fed’s disposal.

Operation Twist “should have a marginal, not revolutionary effect on economic behavior,” Blinder stated in an interview with Yahoo Finance’s Breakout.

Although the Fed is not “totally out of ammo,” according to Yahoo, “they don’t have much left in the way of high impact weaponry.”

Blinder – now an economics professor at Princeton – went on to say that “Once you run out of bazookas you shoot the machine gun.  When you run out of machine guns, you shoot the rifle. You run out of rifles, the pea shooter, the bb-gun, whatever you’ve got.”

As for Chairman Ben Bernanke specifically, Blinder contended that “I don’t believe the Bernanke is in the ‘I give up mode.’ I don’t think he’ll ever give up. He’ll keep shooting pea-shooters, the bb-guns, the sling-shots. Whatever he’s got left.”

Bernanke’s unwavering fight against deflation, as Blinder described, is music to the ears of gold bugs.

Source; http://www.goldalert.com