The Illusion of Choice

.............The State’s self-serving version: Too Big to Fail? Where might the economy be if the weak hands had been eliminated from the market, ceding what remaining value they had on the books to institutions that had exercised prudence and good judgment while future bailout recipients busily indulged in excessive risk-taking and reckless profligacy?

We’ll never know, of course…because Bernanke, Paulson, Pelosi & Co.’s false dilemma scared enough people into thinking there was “no other option”........ it attacks the creative process by which new ideas come to “market” by slamming the door closed on alternative possibilities.

Nowhere is a free market alternative presented. And it’s little wonder why. At the precise point the free market ends, the tyranny of The State begins. Nowhere do the two overlap. (Crony capitalism, mixed market economies and the rest are NOT free markets.) Clearly, therefore, it is in The State’s best interest to see that free market activity is marginalized as far as possible in order that The State itself might occupy ever more space in people’s minds and, by extension, in the economies they are “allowed” to build....some confused people even contend that, were we to ignore the iron-fisted directives of The State, we would promptly descend into a Mad Max-style dystopia, in which a collection of unchecked territorial monopolies would roam the planet, stealing and damaging property at whim and torturing, imprisoning and killing whomever they so wished.....

By Joel Bowman

Jim’s Mailbox....

In 1974 I placed an advertisement in Barrons saying gold would go to $900. That made for good laughs amongst the establishment then at Domonicos Steak House in the financial district. When in early 2000 I suggested gold would go to $1650 there were great laughs amongst the newbies. Now we are going to and through $3500.

If we go back to the late 1960′s, the gold price was suppressed to try and keep it at the $35 dollar price level where it had been for years, some three and a half decades. If anyone had suggested the gold price would rise from $35 to $887.50 at the high in 1980, they would have been considered nuts. A 25 fold increase. Yes, it settled down at 400 dollars for the next 30 something years, but that was still 11.4 times what it had been for the several decades before that.

We now have moved up to roughly 1600 dollars, a 4 fold move. The folks that did the repression in the 1960′s, I believe it was called the London Gold Pool, lost the battle, and the same folks doing the same thing will lose this one too....

....a 25 fold move for gold would put us at $10,000 gold, something most reading this will simply not believe.

The powers that be continue to print more paper money with abandon, while denying to the grave they are doing it. They either print, or the system comes down tomorrow..... 

Nations are no different than people. At some point you cannot pay the interest. When that happens, currencies implode. When currencies implode, you better make sure you own gold. If you have the means to buy in the current weakness in the gold price, do so. If you don’t have the means, don’t do anything – make sure you have ample cash in hand so as not to have to sell out any of your position while it has been manipulated lower. There are powers that want you out of gold, holding only paper for when the currencies are devalued. Do not throw away your insurance policy. When gold lights up, many will be shocked, not understanding why it is doing so. The price control mechanism for gold and silver is beginning to break down, as it did in the 60′s.

The Aftershock Survival Summit Transcription

Given the pullback in income growth as well as other economic factors like inflation and a weakened dollar, the retirement age would now have to be raised to 73 for average Americans just to maintain the same standard of living as in the 1940s.

Since the average life expectancy is currently about 78, millions will now have to work until they drop dead, instead of enjoying their golden years.... jobs will be tight, especially for people over 55. So for those seeking job security during the coming crisis, the necessities sector is the place to be.This is composed primarily of healthcare, education, utilities, basic food, basic clothing, and government services.

I'm not a "Gold Bug" by any means. But I know what investments are right for different conditions.
Gold will continue to be a favorite safe haven for countries across the globe.
Right now, only 10 percent of the world's total gold is purchased by the United States.
Which puts us right in line with Turkey.

India currently buys more than 20 percent of the world's gold, China 18 percent, and other countries will increase their stakes in this precious metal as confidence in the U.S. wanes.

But gold is just like any other bubble. It will burst eventually...

After inflation really sets in, you will need to keep cash in short-term investments such as money markets, TIPS, and Treasuries. Their low returns don't exactly make them very attractive, but they will protect you against inflation much better than longer-term debt.
I highly advise our viewers to stay away from long-term bonds.
Let me stress that again. Avoid long-term, government bonds.

.....Bob Wiedemer (author of Aftershock)
The Aftershock Survival Summit Transcription

About Those Excess Reserves At the Fed

If reserves do not matter, if they are a meaningless accounting entity, then it would not matter what the Fed pays on them, except for the purposes of a risk free handout to their banking buddies. And there may be a valuable insight in that after all.

Regardless, I would just like the Fed to make up its collective mind what their position on this really is, and not trot out whatever argument they feel suits the moment, although that does seem to be à la modeamongst economists these days. They have become as bad as attorneys and accountants. The truth is whatever we say it is, whatever the guy with the most money wants it to be.

The next time some economist says that paying interest on Excess Reserves does not matter, show them this newswire copied below, and let them argue it with Alan Blinder. San Francisco Fed President John C. Williams made a similar argument about four weeks ago. And Bernanke concurs that this is a powerful weapon in his mad scientist's toolkit. ....some economists argue that Fed interest payments on reserve do not matter because they do not want to deal with the political issue of paying what is essentially a subsidy to the banks for the reserves that the Fed creates for them...

jessescrossroadscafe

David Einhorn Throws France Under The Bond Vigilante Bus

.... France is now cozying up to its new anti-austerity, pro-money-printing allies, Italy and Spain. This makes sense when one considers that France's economy is more akin to that of its southern neighbors than it is to the German economy. Strangely, the French bond market hasn’t figured this out just yet."

In April, the LTRO “fix” began to wear off as bank customers in Europe’s periphery started contemplating what would happen to their savings if their nation left the Euro. Visions of bank statements not in Euros, but in ‘newly re-issued for the purpose of devaluation’ local currency, offered no twinges of nostalgia. National pride gave way to pragmatism as depositors in Spain, Italy and Greece began transferring money in droves from their respective local banks to less risky banks of other countries – particularly those with German names. The market took note of these incipient bank runs as peripheral sovereign bond spreads raced to new highs.

By early June the market had given back all of its first quarter gains ....a simple analysis of Germany shows that its own fiscal situation isn’t so rosy, particularly if it is also headed toward recession. Were it to try to bail out its neighbors, there is the risk that they would all sink together. Germany already has its own fiscal commitments, and its economy is simply not big enough to bail out the rest of Europe.

The whole thing is such a mess – who can blame them for heading for vacation? ....

By Tyler Durden

Austerity Is Not Discretionary

...we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector. We now have an economy that is saturated with debt: $54 trillion or $53 trillion – 3.5 times the GDP – way off the charts from where it was for a hundred years prior to the beginning of this. The idea that somehow all of that debt is irrelevant, as the Keynesians would tell us, is fundamentally wrong – and the reason why the economy can't get up off the mat....

..you can't live beyond your means because it's pleasant. It's not sustainable. Clearly the level of debt that we have is not sustainable. We have a whole generation – the Baby Boom – that's about ready to retire, and they have no retirement savings. We have a federal government that is bankrupt, literally. Its [debt is] $16 trillion and growing by a trillion a year. Something's going to give. We can't pay for all these entitlements. There won't be the revenue generation in the economy to do it.... Austerity hasn't been forced upon us yet. The dollar is up, people are continuing to buy Treasuries – both nations and banks are buying Treasuries. To all extents and purposes, people are continuing to show massive confidence in the US government, lend it money at extremely cheap interest rates, and letting it build up its debt.

This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank.

The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

monetary central planners who are attempting to use the crude instrument of interest-rate pegging and yield-curve manipulation and essentially buying debt that no one else would buy, in order to keep this whole system afloat. It's Ponzi economics. Anybody who had financial training before 1970 would instantly recognize this as Ponzi economics

The greatest period of growth in American history was 1870-1914 – the Fed didn't exist. Right after 1870, when we recovered from the Civil War we went back on the gold standard. It worked pretty well...Where we should have been by the Lehman crisis event. In the next seven weeks, this crazy lunatic who's running the Fed increased the balance sheet of the Fed by $900 billion, in seven weeks. In other words, they expanded the balance sheet of the Fed as rapidly in seven weeks as it had occurred during the first 93 years of its existence. And that's not all, as they say on late night TV: in the next six weeks they added another $900 billion. So in thirteen weeks they tripled the balance sheet of the Fed.....

David Stockman

The Cons and Cons of Debt Monetisation

A critical point to understand is that monetary inflation carried out by the central bank is a problem for the same reason that private counterfeiting is a problem. It results in an exchange of nothing for something and is therefore a form of theft. Nobody would argue that a private counterfeiter was providing a valuable service to the economy if he printed-up money to buy the bonds of financially-stressed governments, so why do many people believe that the central bank can do some good when it buys bonds with money conjured out of nothing?

Adding to the supply of money cannot possibly add to the total wealth in the economy, and yet some people get richer as a result of the monetary injection. If some people get richer while the total wealth is not increased, then other people must be made poorer and what we are dealing with is a forced transfer of wealth. 

In effect, the costs of making a bad investment in bonds would be shifted from those who made the ill-conceived investment decision to those who had nothing to do with the decision. Furthermore, the shifting of costs would be done surreptitiously. If all euro savers were sent a bill for their share of the wealth transfer there would be an uprising, but when the transfer is done via monetary inflation not even one person in one hundred will be able to figure out why he/she has become poorer.

The costs to euro savers are hidden from view because rather than there being an immediate transfer of money there is a gradual transfer of purchasing power....

By Steve Saville, 321Gold