Mike Savage
"Debt-mageddon"
It occurs to me that debt is the act of moving future purchases into the present moment. In its purest form debt is an agreement between two parties that allows the borrower to take possession of a good or service today and pay the principal and interest back over time.
Both parties should win in this transaction because the borrower gets the use of a product or service he or she may not otherwise be able to afford and the lender has access to an income stream and can look forward to the retirement of that debt over time. Hopefully before the useful life of the product or service is finished.
What I would call "good debt" is a debt that actually produces something so that the debt would be retired by a productive enterprise that produces profits. Think of a small business loan.
A debt that I would call a "push debt" is a debt that would allow you to take possession of an asset and pay it off over time like a home mortgage. This is a debt that, while doesn't produce the profits to pay off the mortgage in and of itself, it is somewhat productive because at the end of the term you own an asset.
Non-productive debt is debt that is accrued and not only has no means of being paid off in and of itself but what is purchased is actually consumed. This type of debt is dangerous because it is actually spending for current consumption. This type of debt makes it imperative that new debt is created all of the time to pay off old debt that cannot be paid off and to continue with current consumption. Think of paying off a credit card with a credit card that has a higher balance.
This non-productive debt is what is issued when people pay for gas, food, medicine, etc. with a credit card because they can't pay with current income or assets. At the end of the day the product is consumed and the borrower is just left with more debt. Unless there is a substantial pay raise there is trouble in the near future as the debts keep piling up. At some point if this type of financial management continues it will likely end in bankruptcy.
Picture a person who has an income of $30,000.00 but has loans outstanding of $180,000.00 and no surplus to make payments. It won't be long until trouble arrives.
I gave you that illustration because we can understand those numbers. They are troubling and we all know why. That amount of income cannot carry that amount of debt for long.
These are the same numbers that the US Federal government is playing with right now-MINUS 8 zeros of course. In addition, if anyone were counting on Social Security, Medicare, prescription drug coverage, etc. the number in our hypothetical situation would go to an outstanding loan balance of 1.8 million dollars with a $30,000.00 income. OUCH!
Of course, our central bank has a printing press. We the people do not.
I believe we have long passed our ability to service the enormous amounts of debt and promises that we have made and are now reduced to "printing up" money to retire debt that is maturing and to pay interest on our current outstanding debt. This was illustrated when the treasury department issued a trillion dollars of new bonds in the first four weeks of the USA's fiscal 2015 year. The reason- to pay off maturing bonds. We issued an additional trillion dollars and have NOTHING to show for it - but the debt!
Another form of non-productive debt would be the issuance of debt to repurchase a company's stock. The debt is obtained to do some financial engineering and enrich the shareholders and the management team. Short term it is great. However, the debt remains long after the bonuses are paid out and that will be a drag on future earnings at some point. This doesn't even take into account what innovations and profits may have been earned if these assets were deployed in R&D or strategic acquisitions. Or how many jobs may have been created to retire the debt over time.
I am picking on the USA because we live here and I believe we will feel the greatest impact when this debt bubble, which dwarfs any other previous bubble of any kind, implodes under its own weight. (my opinion).
The problem is that this type of "debt-mageddon" is taking place in virtually all of the developed countries of the world. Think Greece (who, as far as I know, has the only government to officially declare, "We are bankrupt." We were bankrupt in 2010 and we took money to extend and pretend.
Think about Italy, Spain, Portugal, Ireland, France, even Russia and China have gone down the same path. And of course the leader on the way to the cliff has to be Japan. Their central bank obviously has no shame.
They are actively trying to devalue the Yen as they sell government bonds from government pensions to the central bank (which "prints" the money up as needed to buy them) and purchase stocks (foreign and domestic) and foreign bonds with the proceeds. (Conjuring up "money" with no effort and buying assets). Basically, they are making life more expensive for their citizens while exporting deflation to the rest of the world. They have admitted these actions officially. It is my opinion that most central banks are doing the same types of manipulations around the globe. That is why Ms. Yellen probably opposes the "audit the Fed" legislation.
Does anyone else see how absurd this is?
These are just a few of the shenanigans going on to keep the game going a little longer and make it someone else's problem. In my opinion, stocks, bonds and real estate are being artificially held higher by these games that enrich the few and other assets are being held down.
Just like when the Swiss allowed the Swiss Franc's artificial peg to the Euro to expire it increased the value of the Franc by 40% in 15 minutes. This is what happens when there is an artificial price and price discovery is allowed. The Franc was being held artificially low to protect the country's exporters.
I am expecting a lot more volatility as we move forward in 2015 because of the massive imbalances built up between economic reality and the underlying economy. This could be the year when many will realize that this debt (Over 200 Trillion dollars owed by governments - not including social spending) is not getting paid back in any traditional manner.
This debt underpins all of the financial assets. A lack of cheap money (higher rates) could implode the mortgage and stock markets in short order. Even drastic moves in currency markets could cause some serious price discovery in stock and bond markets.
Finally, as I woke up this morning I saw on CNBC that the government and the CFTC are investigating 10 major banks for manipulating the precious metals markets (gold, silver, platinum and palladium).
My guess is that a few mid-tier managers will be offered up as a sacrifice and we will move on. However, this game is almost up. I am surprised it went on this long but when there is true price discovery in these assets look out. These are the only assets that I am aware of that are not someone else's liability. This will be an extremely important point in the near future if greed turns to fear.
I cannot think of another asset other than gold and silver where the demand is high, supply is limited and the price is going down while trillions of currency units (what we would buy these assets with) are being conjured up by the tens to hundreds of trillions of dollars, yen, yuan, euro, etc.
This also appears to be the only market I have ever seen when major sellers make their largest trades when the market for trading is at its thinnest level. If you were trying to actually get a good price rather than knock the price down I would think that the more people trading would give you the best chance at a good price. This happens far too often to be a coincidence.
I believe that when this price discovery begins it will surprise virtually everyone in size and scope.
This is truly a time to hold all asset classes because this situation is highly unstable and practically any outcome is possible. In this environment it does not pay to be complacent but it very well could pay to BE PREPARED!
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LeMetropole Caf�
In addition to the gold rally being stopped in its tracks right below $1220, silver was barely allowed to breathe. Each time it managed to poke its head above $16.60, that same annoying level, the price was shoved back down. With gold moving up, JPM and friends wouldn't even allow silver to remain positive on the day.
One reason why silver was leaned on by those guys was that it has run up against a pronounced February downtrend line...
A special note on those charts:
*We have spoken for some time now about the bases in gold and silver building. Nothing has changed except they keep growing larger. The larger the base, the more it can support even higher prices once The Gold Cartel is forced to retreat. Because of what THEY have done for so long, and kept the precious metals prices artificially low for so long, the retreat is likely to be dramatic when it kicks in.
Bill,
While gold and silver are being squatted on by a 10-ton cartel elephant today I thought I would get a handle on why Kitco is so irritating. More specifically I started writing down all of the banned gold analysts and compared them to their "approved" analyst roster. They are as follows:
List of gold and silver analysts banned from Kitco's site:
* GATA
* Everybody who spoke at the GATA London conference
* Anybody interviewed by the King Report
* Anybody getting posted at Jim Sinclair's site
* Koos Jansen
* Ted Butler
* Paul Mylchrest
* Tyler Durden
* Richard Russell
* Daryl Robert Schoon
* Paul Craig Roberts
* Dave Kranzler
* Turd Ferguson
* Jessie
* Jim Willie
* Brien Lundin
* Mark O'Byrne
* Peter Grandich
* Peter Schiff
* Bill Holter
* Andy Hoffman
* At least 12 more gold analysts who believe in gold manipulation who I can't think of right now.
List of approved Kitco commentators:
* Reuters
* Bloomberg
* MarketWatch
* CNBC
* HSBC, Citi, JPM, and any other mega-gold short TBTF bank
* Dan Norcini (now that he has parted ways with Sinclair and renounced his manipulation ways)
* Keith Weiner
* Clive Maund
* Peter Hug
* At least 12 other contributors that collectively have contributed ZERO to the gold discussion over the past 15 years, ignore manipulation, and are about as interesting as boiled turnips.
Conclusion: Bart Kitner apparently doesn't own a lot of physical gold, and he doesn't really prefer to see gold freely traded. He gives a megaphone to gold's enemies, while silencing gold's true friends.
JMc
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Zero Hedge
Here Is The Reason Why Stocks Just Had Their Best Month Since October 2011
Submitted by Tyler Durden
If not the economy or fundamentals, and if not the Fed, which as we know is still on sabbatical after its massive QE1-2-Twist-3 $3 trillion liquidity injection, just what has pushed stocks up to jaw dropping all time highs? Here, courtesy of Deutsche Bank, is the answer...
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Greenspan: "The Stock Market Is Great", But The Economy Feels Like In "The Late Stages Of The Great Depression"
Submitted by Tyler Durden
While conflicting economic data leaves hope for both bulls and bears, Alan Greenspan warns that, unlike Yellen, "US economic growth is not strong." The maestro then breaks the golden rule of central bankers and explains how The Fed was, in fact, the main driver of the P/E multiple expansion in stocks; and when asked if this ends as badly as last time? He concludes, "It depends...When real interest rates start to move up, that's when the crisis could hit," concluding with a warning that global "effective demand is extraordinarily weak - tantamount to the late stages of the great depression."
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ECB Warns UK: Excluding Russia From SWIFT "Could Undermine Confidence In The Whole System"
Submitted by Tyler Durden
As "isolated" Russia signs a military deal with Cyprus, agrees bilateral trade with Greece, ratifies the $100 billion BRICS Bank, and offers to trade advanced anti-aircraft missiles to Iran, it seems threats of more sanctions against Putin and his nation are finding resistance from an unexpected place. With British PM David Cameron re-demanding that Russia be excluded from the SWIFT global financial payments system, none other than ECB Governing Council member Ewald Nowotny has exclaimed, "one has to be very careful here, exclusion of Russia from Swift would be very problematic because it could potentially undermine confidence in this system as a whole."
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Don't Show This To Warren Buffett (Gold vs. The Financial System)
Submitted by Tyler Durden
Warren Buffett once famously chided that all the gold in the world would form a cube of 67 feet (20 meters) on each side. In doing so, he was attempting to argue that there was no point in owning gold since all the gold in the world would be an unproductive, useless hunk of metal. What's ironic (and completely lost on the venerable Mr. Buffett) is that you could make the same argument about the paper-based financial system.
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Ed Steer
You may feel that what happened to the precious metals occurred entirely in response to what was happening to the almighty dollar, but a fair and objective examination of the precious metal price charts---with the minor exception of platinum---compared to the dollar index itself, will not bear that out.
Please don't forget for one minute that we're up against all the money, power---and evil in the world. The "evil" part came during a chat I had with Jim Rickards in San Antonio last September.
Well, the U.S. is not stopping or even slowing down much when it comes to the pressure they're putting on Russia vis-�-vis the Ukraine. Push is really becoming shove now---and I'm sure that "the dogs of war" will be howling in the Western press in the days ahead about the event in Moscow yesterday.
Even China has put their marker down on the Russia/Ukraine imbroglio---and the reason is obvious, because they know that if Russia falls, they're next on the USA's list.
Sooner or later one would think that this war would show up in the gold price---notwithstanding any improvement in demand from Apple's new iWatch.
I've always thought that the day would come when, in pure self defense, Russia and/or China might be forced to play the gold card whether they wanted to or not.
If this, in fact, does happen, then the U.S. will be able to point a finger at Russia and/or China and say that it was all their fault. How materially higher precious metal prices would affect the Western bullion and investment banks that currently hold massive COMEX short positions in all four of these metals, is something that remains to be seen. At the same time one has to consider where the metal will come from to meet the demands of all the precious metal ETFs on Planet Earth if/when this event does occur. Questions with no answers at the moment.
And notwithstanding anything I just said, I'm still amazed how the powers-that-be can keep this dog and pony show going across all markets. For those of us who have been around the block a few times, the current economic, financial and monetary situation is beyond absurd---and there's no way that any part of it will be ever be brought under control successfully. The whole scenario will blow up, or melt down---and you'll excuse me for thinking that may be the grand plan, as no attempt is being made in any quarter to put the brakes on any of this.
It will all end terribly---and in a heap. But as to what will emerge from the rubble after that, I haven't a clue.
So we wait.
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China plans yuan-denominated gold fix this year, sources tell Reuters
China plans to launch a yuan-denominated gold fix this year to be set through trading on an exchange, sources familiar with the matter said, as the world's second-biggest bullion consumer seeks to gain more say over the pricing of the precious metal.
The Chinese benchmark would be derived from a new 1-kilogram contract to be launched on the state-run Shanghai Gold Exchange, a senior source directly involved in the process told Reuters.
China, also the top producer of gold, feels that its market weight should entitle it to be a price-setter for bullion and it is asserting itself at a time when the established benchmark, the century-old London fix, is under scrutiny because of alleged price-manipulation.
This Reuters article, filed from Singapore, put in an appearance on their Internet site at 3:07 a.m. EST on Friday morning---and I found this gold-related story on the gata.org Internet site.
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Mark O'Byrne: 12 reasons why Ritholtz and many experts are mistaken on gold
GoldCore's Mark O'Byrne has replied conscientiously to fund manager and financial writer Barry Ritholtz's ridicule of gold investment and gold investors, "12 Rules of Goldbuggery," which can be found at Rithotlz's Internet site.
O'Byrne's reply is headlined "12 Reasons Why Ritholtz and Many Experts Are Mistaken On Gold" and it was posted on the goldcore.com Internet site yesterday.
I'm grateful to Mark for riding to the defense of us "gold enthusiasts"---but I personally wouldn't have dignified Ritholz's commentary with a rebuttal of any kind. No feedback at all is worse punishment that the reasoned and learned response of Mr. O'Byrne. But I salute him, thank him---and owe him a beer if we ever meet. The links to both are embedded in this GATA release.
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Gold 'Absolutely' a Safe Haven - BMO Analyst
Kitco News speaks with BMO's Jessica Fung to see how she sees gold and silver set up for the coming year.
Based on her research, Fung says she expects U.S. dollar strength, which has hindered upside potential for metals prices, to continue. "In this environment, where we expect the U.S. dollar to continue to strengthen, I think we're going to maintain a very high gold-to-silver ratio," she says, adding that this increasing ratio hasn't allowed silver to keep up with any gold price upswings.
Looking to global uncertainty, Fung says gold is 'absolutely' a safe-haven. "It always will be and that is what it will take to drive prices higher," she adds.
It's scary when they use the word 'analyst' to describe people like this. She's just another mouthpiece spouting things about precious metals that she has no real understanding of. This 4:08 minute video clip appeared on the kitco.com Internet site yesterday---and it's another contribution from Dan L.
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Jim Sinclair
Why Does Maryland Have The Most Millionaires Per Capita? The Answer Might Make You Angry
Submitted by Michael Snyder via The Economic Collapse blog
The fat cats in Washington D.C. are living the high life, and they are doing it at your expense. Over the past decade, there has been one area of the country, which has experienced a massive economic boom. Thanks to wildly out of control government spending; the Washington D.C. region is absolutely swimming in cash. In fact, at this point the state of Maryland has the most millionaires per capita in the entire nation and it isn't even close. If you have never lived there, it is hard to describe what the D.C. area is like.
Every weekday morning, hordes of lawyers, lobbyists and government bureaucrats descend upon D.C. from the surrounding suburbs. And at the end of the day, the process goes in reverse. Everyone is just trying to get their piece of the pie, and it is a pie that just keeps on growing as government salaries, government contracts and government giveaways just get larger and larger. Of course our founders never intended for this to happen. They wanted a very small and simple federal government. Sadly, today we have the most bloated central government in the history of the planet and it gets worse with each passing year.
If you were to ask most Americans, they would tell you that the wealthiest Americans probably live in cities such as New York or San Francisco. But thanks to the Obama administration (and before that the Bush and Clinton administrations), the state of Maryland is packed with millionaires. In particular, the Maryland suburbs immediately surrounding D.C. are absolutely overflowing with government fat cats that make a living at our expense. Every weekday morning, huge numbers of them leave their mini-mansions in places such as Potomac and Rockville and drive their luxury vehicles to work in the city. As the Washington Post has detailed, at this point approximately 8 percent of all households in the entire state of Maryland contain millionaires, and the rest of the area is not doing too shabby either...
In Maryland, nearly 8 out of every 100 households in 2014 had assets topping $1 million, giving the state more millionaires per capita than any other in the country, according to a new report from Phoenix Marketing International.
Hi Jim,
If the Indians implement this strategy will it succeed, or be attacked by the other central banks?
"Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized, the Finance Minister said.
He also proposed to develop an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold.
"The bonds will carry a fixed rate of interest and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the bond," he said. "
Cheers,
CIGA Gary
Gary,
Gold is deep in the heart and soul of India. They just might plow forward as Western Central Banks now have the Brics to contend with. The reset will start amongst the Brics.
Jim
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Union Budget 2015-16 proposes steps to monetize gold, contain imports
To curb gold imports and monetize large idle stocks of the precious metal, Finance Minister Arun Jaitley on Saturday announced three schemes, including redeemable gold bonds, which will carry a fixed rate of interest.
The Minister proposes to introduce a gold monetization scheme, which will replace both the present gold deposit and gold metal loan schemes.
"The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold," Mr. Jaitley said in his Budget speech.
India is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of gold each year.
Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized, the Finance Minister said.
