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Posts Tagged ‘US Default’

David DeGraw
AmpedStatus
08/25/2011 22:39 -0400

There are many factors that clearly demonstrate why it would be disastrous for the Federal Reserve to repeat their vicious Quantitative Easing (QE) policy. If you want to know a significant reason why they cannot get away with another round of QE, here is an equation for you:

(Quantitative Easing + Extreme Weather = Revolution + World War III)

From the very beginning we knew that the Federal Reserve’s QE program was going to cause the cost of food to rise and the dollar to decline in value, and that these intended results would lead to an increase in poverty and civil unrest. Now there is a new study that gives us some more proof of this obvious fact:

Are food prices approaching a violent tipping point?

“A provocative new study suggests the timing of the Arab uprisings is linked to global food price spikes, and that prices will soon permanently be above the level which sparks conflicts….

… there is a specific food price level above which riots and unrest become far more likely. That figure is 210 on the UN FAO’s price index: the index is currently at 234, due to the most recent spike in prices which started in the middle of 2010 [coinciding with QE2].

Lastly, the researchers argue that current underlying food price trends – excluding the spikes – mean the index will be permanently over the 210 threshold within a year or two. The paper concludes: “The current [food price] problem transcends the specific national political crises to represent a global concern about vulnerable populations and social order.” Big trouble, in other words….

The next part of the study identifies that the serious unrest in North Africa and the Middle East also correlates very closely with [the QE2] food price spike. Bar-Yam also notes: “Several of the initial riots in North Africa were identified in news stories as food riots.” From there, the researchers make their prediction of permanently passing the 210 threshold in 12-24 months.”
[read full report]

In other words, if the Fed engages in another round of QE, the global unrest that they have already ignited will go hyperbolic.

Before getting into the details on how the Fed deliberately made these food prices spike, let’s look at another new study, which also helps demonstrate the obvious, extreme weather is linked to war:

Climate cycles linked to civil war, analysis shows

“Changes in the global climate that cut food production triggered one-fifth of civil conflicts between 1950 and 2004

Cyclical climatic changes double the risk of civil wars, with analysis showing that 50 of 250 conflicts between 1950 and 2004 were triggered by the El Niño cycle, according to scientists.

Researchers connected the climate phenomenon known as El Niño, which brings hot and dry conditions to tropical nations and cuts food production, to outbreaks of violence in countries from southern Sudan to Indonesia and Peru.

Solomon Hsiang, who led the research at Columbia University, New York, said: “We can speculate that a long-ago Egyptian dynasty was overthrown during a drought. This study shows a systematic pattern of global climate affecting conflict right now. We are still dependent on climate to a very large extent.”…

Mark Cane, a member of the team, said global warming would have greater climatic impacts than El Niño, making it “hard to imagine” it would not provoke conflicts.”
[read full report]

Put all these factors together and you have, “The Road Through 2012: Revolution [and/or] World War III.”

In summation, Ben Bernanke and the Fed’s economic central planners were clearly aware of the hostile climate and weather patterns when they engaged in QE2. The Fed’s infamous policy, as I said before, “deliberately threw gasoline all over those brush fires. QE2 was another economic napalm bomb from the global banking cartel.” They knew that they were deliberately attacking (sacrificing) tens of millions of people, but that was secondary to keeping their global Ponzi scheme going by pumping another $2.1 trillion into their fraudulent, insolvent banking system through both QE programs. This is why Ben Bernanke is guilty of crimes against humanity.

Now, let’s revisit what I’ve been reporting on for the past year:

I: Centrally Planned Economic Repression

The IMF has a well-worn strategy that they use to conquer national economies. As I warned four months ago, we have now progressed into Step 3.5: World Wide IMF Riots. Back in October, in a TV interview with Max Keiser, we discussed leaked World Bank documents that revealed the IMF’s strategy. I stated the following:

“They have a four-step strategy for destroying national economies…. We are about to enter what they would call Step Three. Step Three is when you’ve looted the economy and now food and basic necessities all of a sudden become more expensive, harder to get to. And then, Step 3.5 is when you get the riots. We are fastly approaching that….

We are headed to, as the IMF said, and as they plan, Step 3.5: IMF Riots. That’s what’s coming…”

Fast-forward four months to today, and now we see country after country rebelling against high food prices. Since our October interview, food prices have spiked 15%. According to new World Bank data, since June 2010, “Rising food have pushed about 44 million people into poverty in developing countries.”

As Federal Reserve Chairman Ben Bernanke announced another round of Quantitative Easing (QE2), those of us paying attention knew that the trigger had been pulled and Step Three had been executed. It was a declaration of economic war, an economic death sentence for tens of millions of people – deliberately devaluing the dollar and sparking inflation in commodities/basic necessities. It was a vicious policy that would impact people from Boston to Cairo.

When QE2 was announced, I warned: “Food and Gas Prices Will Skyrocket, The Federal Reserve Just Dropped An Economic Nuclear Bomb On Us.” I also wrote: “The Federal Reserve is deliberately devaluing the dollar to enrich a small group of a global bankers, which will cause significant harm to the people of the United States and severe ramifications throughout the world…. The Federal Reserve’s actions are already causing the price of food and gas to increase and will cause hyperinflation on most basic necessities.”

To be clear, there are several significant factors contributing to rising food prices, such as extreme weather conditions, biofuel production and Wall Street speculation; but the Federal Reserve’s policies deliberately threw gasoline all over those brush fires. QE2 was another economic napalm bomb from the global banking cartel.

In a recent McClathy news article entitled, “Egypt’s unrest may have roots in food prices, US Fed policy,” Kevin Hall reports:

“‘The truth of the matter is that when the Federal Reserve moved on the quantitative easing, it did export inflation to a lot of these emerging markets…. There’s no doubt that one of the side effects of the weak dollar and quantitative easing has been rising commodity prices. It helped create this bullish environment for commodities. This is a very delicate balancing act.’

It’s a view shared by Ed Yardeni, a veteran financial market analyst, who reached a similar conclusion in a research note to investors…. He joked that Fed Chairman Ben Bernanke should be added to a list of revolutionaries, since his quantitative easing policy, unveiled last year in Wyoming, has provoked unrest and change in the developing world.

‘Since he first indicated his support for such a revolutionary monetary change… the prices of corn, soybeans and wheat have risen 53 percent, 37 percent and 24.4 percent through Friday’s close,’ Yardeni noted. ‘The price of crude oil rose 19.8 percent over this period from $75.17 to $90.09 this (Monday) morning. Soaring food and fuel prices are compounding anger attributable to widespread unemployment in the countries currently experiencing riots.’”

The people throughout the Middle East and Northern Africa, on the fringe of the Neo-Liberal economic empire and most vulnerable to the Fed’s inflationary policies, are the first to rebel.
[read full report]

The conclusion that we reach, the unfortunate reality of our current crisis: the Federal Reserve and global economic central planners have declared war on us. We are under attack.

We must remove Ben Bernanke from power and hold him and the rest of the global banking cartel accountable. We must also break up the “too big to fail” banks. This a message I, along with many others who have analyzed our economic situation, have been repeating over and over for the past three years.

Hopefully, a critical mass of people will soon understand this reality and back it up with non-violent civil disobedience before riots and violence rip our society apart. For these reasons, let’s all go to Wall Street on September 17th and show these tyrants that we’ve had enough.

Read the entire article HERE.

By Chris Martenson PhD
07/28/11
Financial Sense

For the record, I still believe that there will not be a breach of the debt ceiling and no overt default for the US. Things will be worked out in the nick of time, like they always are.

However, the media is full of articles wondering about what ‘investors’ might do in response to a US default and/or credit downgrade. What will happen to Treasury prices? Will they go down as investors dump them en masse in response to a credit downgrade forcing interest rates to climb?

It’s a big question and the most likely answer is “No, not really”. Partly because these so-called investors have been well-conditioned to believe that another bailout is always around the corner, but mainly because they have nowhere to go.

The big money is trapped.

For example, imagine that you are in charge of a money market fund with $100 billion under management and your job is to both cover your expenses and assure a return for your depositors and you are heavily invested in US Treasurys. Or imagine that you are in charge of a public pension with $200 billion under management with the same basic concerns of managing expenses and delivering returns and a heavy exposure to US Treasurys but with a much longer time horizon.

In either case, in light of the possibility of a US default what would you do? Where would you put your money right now if you were suddenly of the mind that the $50 billion you had in Treasurys should be placed somewhere else? In reality there are not that many places to quickly move such large sums of money. Further, there might be fiduciary restrictions that limit your investment options to regions, securities types and/or ratings grades or there might be a minimum liquidity requirement for the investment pool.

So let’s imagine that you have to make very large and important financial decisions and that you have to put your money to work; it’s either an actual fiduciary or operational requirement of yours. An excessive amount of cash is not an option and neither are hard assets such as land, gold or silver. Where would you put it? What realistic options exist?  It turns out there are not that many.

The Treasury market is the largest and most liquid in the world, by far. For many big money funds there really aren’t any realistic options other than the Treasury market, and this present reality will limit the market reaction to any downgrade.

A Foul Choice

With interest rates on ‘safe’ sovereign debt at or near zero on the short end, and well below the rate of inflation on the long end, safe bonds offer a negative real yield (meaning a yield below the rate of inflation). This is a compounding disaster for everyone but especially for pension funds with their longer time horizons. Worse, we now know sovereign debt can no longer be considered safe (even the US is facing a downgrade threat) - which means that on a risk-adjusted basis, the returns are even more unattractive than the negative real yields on offer.

On the surface, the choice that Bernanke has engineered for investors is between guaranteed losses via the miracle of negative real compounding and taking on more investment risk. But he’s managed to combine both negative returns and risk into a very unattractive investment brew.

Most big money funds have opted to take on more risk rather than suffer such low returns (and who could blame them?) and have done so by going to where the yields happen to be. This means buying up corporate paper and European debt, both of which have far more risk than their nominally more attractive yields would imply.  For individual investors, especially savers and those living on small incomes tied to interest rates, the negative interest rates have been especially difficult if not an outright disaster.

Once again, we can thank Ben Bernanke et al for driving interest rates into punishingly-low territory forcing everyone with a desire or responsibility to save and invest to either lose to inflation or to take on more risk.

Part of the goal behind ultra-low interest rates was to drive money back into the stock market, which the Fed has been specifically and openly targeting in both word and deed.  It is a well known fact that low interest rates are supportive to the stock market and so far that strategy has worked.

On the flip side of this success is the fact that a lot more risk has been forced into the system. When prices are artificially distorted to the upside for stocks or bonds, then it is axiomatic that risk becomes mispriced.

Having to choose between mispriced risk and negative returns is truly a foul choice indeed.

The Deficit Theatre

All of this brings us to the current sad state of affairs now put into high relief by the deficit talks in DC, which more properly should be viewed as political theater rather than a legitimate attempt to square the federal budget up with reality. If the talks were truly legitimate, then on the expense side everything would be on the table, especially and including defense spending and a balanced budget amendment would not be a source of contention but a mutually agreed upon goal.

Instead the Democrats are willing to entertain higher spending cuts in the vicinity of $250 billion per year as long as they can have a debt ceiling increase that would get them safely past the 2012 elections. Conversely, the Republicans as represented by Boehner are ready to concede to relatively meaningless spending cuts in the vicinity of $100 billion per year as long as they can force the debt ceiling to be an issue for the 2012 election cycle:

Mr. Reid, the Senate’s top Democrat, was trying Sunday to cobble together a plan to raise the government’s debt limit by $2.4 trillion through the 2012 election, with spending cuts of about $2.5 trillion. He would seek to avoid cuts to entitlement programs, but it was unclear how those savings would be achieved.

Notably, the plan does not currently contain any new or increased taxes, an approach that many in his caucus would probably balk at.

The contours of Mr. Boehner’s backup plan were far from clear, but it seemed likely to take the form of a two-step process, with a short-term increase in the debt limit along with about $1 trillion in cuts, an amount the Republicans said was sufficient to clear the way for a debt limit increase through year’s end. That would be followed by future cuts guided by a new legislative commission that would consider a broader range of trims, program overhauls and revenue increases.

(Source – NYT)

Just looking at the proposed levels of deficit reduction, whether it’s $1 trillion or $2.5 trillion, neither plan will drop the deficit enough to prevent the US from slipping deeper and deeper into the red. The true drivers of the debate, such as they are, center on political advantage and power. Count us among the unsurprised at this turn of events.

It would be nice – essential even – to have enough information to go on to really assess the true dimensions of the deficit reduction proposals but, even for a committed analyst like myself, there’s just too little detail to make a decent analysis of any of the competing packages.

However, we can be almost certain that their baseline assumptions about GDP and revenue growth that undergird the putative future deficit levels are unrealistic. They always are in these sorts of circumstances, which means the amount of future savings being bandied about are unlikely to be as robust as claimed.

For example, the most recent CBO budget projections (the foundation upon which the deficit reduction proposals are most likely built), assume that over the next 5 years (2011 – 2016) that revenue will grow at a compounded rate of 11.4% per annum(!), expenses by 3.9% and GDP by a whopping 4.95%.

Per year.

(Source)

These assumptions are just silly. Costs have risen much faster, and revenue and GDP far slower, over the prior five years, and if these pie in the sky projections do not come to pass then all of the deficit numbers will blow out to the upside in those future years.

For example, if we assume that GDP growth is 2.5% per annum instead of nearly 5% (and that revenues are tied to GDP),adn that revenues will therefore ‘only’ increase by 5% per annum (both completely reasonable assumptions at this stage) then the additional cumulative deficit that will accrue between 2011 and 2016 is $2.7 trillion dollars.

That will completely eliminate all of the projected savings from even the most agressive of the proposals on the table.  Is this unlikely?  No, in fact these are a far more defensible set of assumptions than those currently being put forth by the CBO.

To really make a mockery of the current budget projections, there is absolutely no chance of the government both cutting its share of GDP by 2% per year and having the GDP grow by nearly 5% per year. Implied is a rate of economic growth in the private sector that would be truly extraordinary.  Further, there is no chance of revenues climbing by more than 11% per year over the next five years without an enormous increase in taxes, which neither party is currently proposing.

In short, without knowing the underlying assumptions that are driving the projections, we cannot say much about the proposals themselves. All I can tell you for sure is that for as long as I have been crunching government numbers, taking their rosy projections and cutting them in half has always been a reliable and reasonable starting point.

A Dawning Awareness

What should not be lost on anyone is the degree to which some of the biggest names in the financial world are starting to openly question fiat money and the entire system of debt itself. They’re even doing it on TV, in prime time and on the op-ed pages of the largest newspapers.

Again, by the time we are seeing such open questioning of the very firmament of the entire system, this tells us something about how far along in the narrative we really are. Just a few years ago such talk would have been relegated to the very fringes of the blogosphere.

Here are a few recent examples:

Debt talk damage has already been done

As Washington dithers over raising the nation’s debt ceiling, investor confidence is flowing away.

“The issue is not just whether Moody’s or Standard and Poor’s were to downgrade (U.S. Treasury debt), it’s whether the market decides to downgrade,” said Rochdale Securities bank analyst Richard Bove.

“If they lose faith in the Congress and the government to, in essence, create a solid security for the buyers of that security, then you get the downgrade,” he said.

The sentiment was echoed overseas, where many countries hold U.S. Treasuries as an investment. “An adverse shock in the United States could have serious spillovers on the rest of the world,” warned Christine Lagarde, the managing director of the International Monetary Fund.

“We live in a highly interconnected international financial world that is really based upon confidence,” said financial services industry lobbyist Paul Equale.

“And without confidence, both domestically and internationally — that the United States is mature enough and has a system that can handle making the big decisions — without that confidence we’re going to see things like the dollar becoming less important as the world’s reserve currency.“

Debt-based fiat money relies on multiple levels of confidence. There has to be confidence that the money will not be over-produced in response to every perceived crisis (oops), that its allocation is justified and fair to all parties when it is placed into circulation (oops, again), and there has to be confidence that the future will be exponentially larger than the past to justify ever-increasing levels of debt (this is the big ‘oops’).

We are drawing ever closer to the recognition that endless growth is simply neither possible nor a reasonable expectation. There are even doubts now that growth as we’ve recently know it will return for one last cameo appearance over the next five to ten years.

With the evaporation of that all-important narrative of growth, everything else becomes immediately suspect, especially money itself.

Sometimes you will hear or read someone exclaim that ever since the slamming of the gold window in 1971 that US dollars are not backed by anything. This is not true, they are backed by debt. Debt is an incredible motivator and assures that the person, entity or country under its yoke will dedicate some portion of their productive efforts towards servicing that debt.

Another Big Round Number (and a Nice Symmetry)

On August 15th 2011 we experience the 40th anniversary of the slamming of the gold window back on the same date in 1971. Perhaps we should all bow our heads and have a silent moment to mark the occasion.

Interestingly, that’s almost exactly the date, give or take a few days, on which the US treasury will run out of money here in 2011:

“We don’t think there will be a default,” Ahrens, head of U.S. rates strategy for UBS in Stamford, Connecticut, said yesterday in a telephone interview. He estimates the Treasury has enough cash to make all payments until Aug. 8-10.

(Source)

Forty years between a final abandonment of the last vestige of external restraint on money/credit creation and the dawning recognition that the US has simply gone too far, spent too much, and is now in an enormous fiscal predicament.  In the annals of history that’s just about right for the lifespan of a purely fiat currency.

Mark the date on your calendars: we’ll certainly be observing the anniversary here at ChrisMartenson.com. Forty is a big, round number and therefore important.

So what’s likely to happen to the dollar and key asset classes in the aftermath of the looming August 2 deadline? In Part II of this report: What Should Happen and What Will Happen we analyze the probable future direction of stocks, bonds, precious metals, commodities, real estate and other assets. Additionally, we assess the odds of a resumption of quantitative easing by the Federal Reserve, and what changes to the picture that will cause when/if it occurs.

Read the entire article HERE.

by John Williams
The Gold Report
7/27/11

The Gold Report: Unless Congress approves and President Obama signs an increase in the $14.29 trillion debt ceiling, the U.S. Treasury is set to begin defaulting on payments starting August 2. That threat launched months of competing big deals to cut spending and/or raise taxes. To add to the pressure, in mid-July the credit rating agencies Moody’s and Standard & Poor’s threatened to downgrade the U.S. credit rating from its historic AAA status if the debt limit isn’t raised in time to avoid defaulting on interest and bond payments. That could raise interest rates for the government and trickle down to consumer mortgage loan and credit card payments. John, what kind of deal would be good enough to satisfy bond rating agencies and avoid a double-dip recession?

John Williams: First of all, the chances are nil that the government actually will default. There is some talk that if the debt ceiling were not raised by the August 2 deadline, the government could avoid default for a while by playing games with its payments—pay interest and debt first instead of paying other obligations. That could trigger a rating downgrade, if one had not occurred otherwise. Also, I don’t think global investors would view non-payment of general obligations as a plus and could engage in dumping the dollar. I think Congress will agree, however, to something by the deadline. I have no expectation, though, that the deal will be of any substance; nothing that has been proposed would improve U.S. fiscal conditions meaningfully.

A country’s credit rating is a measure of the risk of debt default. The U.S. dollar, as the world’s reserve currency, is considered the benchmark instrument for an AAA rating. That generally is considered the riskless category. It would be very unusual for rating agencies to downgrade a benchmark. Yet the credit rating agencies now are seeing risk of a U.S. default and are talking a possible downgrade of U.S. Treasuries. A downgrade would have about as much negative impact as an actual default. You don’t want to see a downgrade. You don’t want to see a default. Those actions would have all sorts of implications, very negative implications for the financial markets, particularly for the U.S. dollar. You would see heavy U.S. dollar selling and dumping of U.S. dollar-denominated assets such as Treasury bonds. You would see a spike in dollar-denominated commodity prices such as oil. Gold prices would rally sharply, as would silver, as traditional hedges against inflation.

TGR: Is printing more money really what the government is going to do to pay its debt?

JW: That is what countries that spend beyond their means usually do if they can’t raise adequate tax revenues. I can tell you that the current government cannot raise enough taxes to bring the actual deficit under control. It could tax 100% of income, take 100% of income and corporate profits, and it would still be in deficit. In terms of generally-accepted accounting principles (GAAP) that include annual increases in the unfunded liabilities on a net present value basis, the U.S. is long-term bankrupt. A true balanced budget approach would require excessive overhaul—I’m talking massive cuts in the social programs because cutting every penny of government spending except for Social Security and Medicare would still leave the country in deficit. We are spending well beyond the bounds of reason in a number of areas. The country just does not have the ability to pay for all the services it provides.

TGR: In a July 14 commentary, you said that, “In the event of an actual default or downgrade, the United States position as the elephant in the bathtub of sovereign risk likely would cause the dollar to plummet against all major currencies irrespective of any ongoing concerns related to Euro-area debt.” What would this mean for the U.S. dollar and the price of gold going forward?

JW: Already stocks are down because the markets are frustrated with the lack of a deal. The U.S. is such a large player in the world markets that if the dollar is downgraded, the impact will be felt globally. The dollar should sink against most major currencies, including the euro, and gold prices would experience a big bump up. It should be very positive for gold long term. It doesn’t mean that Central Banks aren’t going to intervene and that the Treasury or IMF are not going to try to keep gold prices down. But, over the long haul, you’ll see much higher gold prices.

TGR: What would default or downgrading mean for the dollar?

JW: If the U.S. defaults or gets downgraded, that likely will end the U.S. dollar as the global reserve currency. That’s not a viable option for the United States. People involved with getting the country to that point should be removed from office. If you are the most financially powerful country on earth, you don’t fool around with your creditworthiness.

TGR: So, if the dollar isn’t the benchmark, would it be the euro? Would it be the yen? Would it go back to a gold standard? What would happen?

JW: It would probably revert to some kind of a basket of currencies, probably including gold. The dollar would tend to suffer against the new benchmark and gold would tend to increase relative to the dollar in such a circumstance. But I can’t tell you exactly what would happen.

TGR: The new European Union plan for reducing the debt burden for Greece, Ireland and Portugal offers longer-term and low-interest loans and allows some bonds to go into temporary default. Does that set a precedent? Will it contain Europe’s debt crisis?

JW: The euro never should have been put in place. Anyone who ever thought that the Germans and the Italians could coordinate fiscal policy didn’t know the Germans and the Italians very well. The euro would have been disbanded or at least realigned by now if we weren’t in the middle of a systemic solvency crisis. The European Union will do anything to keep Greece afloat, as long as it is viewed as a threat to systemic solvency. Once the system stabilizes, I’d expect to see a breakup of the euro.

TGR: In our conversation with you last January, you talked about the difference between the true deficit and the cash-based deficit published by the government. What is the true deficit and what can be done to deal with that?

JW: The GAAP-based deficit is running around $5 trillion a year right now. That includes the numbers popularly looked at in the press and the year-to-year change in the unfunded liabilities for Social Security and Medicare adjusted for the present value of money.

To bring the true deficit into balance, there is nothing that can be done short of slashing Social Security and Medicare programs, and I see that as a political impossibility. Again, I mention the entitlement programs here, because you could eliminate every penny of government spending except for Social Security and Medicare, and the government still would be in deficit.

TGR: One of the other things that we’ve discussed with you before is quantitative easing (QE). Federal Reserve Board Chairman Ben Bernanke said there will be no more quantitative easing. In your July 8 commentary, you said the Fed will likely find the markets and banking system pressuring it into some form of QE3. What form might that take? And, how might that impact the dollar and precious metals?

JW: Well, Mr. Bernanke hemmed and hawed about the status of QE3 at his Congressional testimony earlier this month. The economy is weak enough; he will use that as an excuse. I can’t tell you exactly what the Fed is going to do. I imagine it will go back to buying Treasuries, once the debt ceiling is raised. That will cause weakness in the dollar and strength in gold. Generally, anything the Fed does to debase the dollar, which it continues to do on an ongoing and very deliberate basis, means higher gold.

TGR: So, what is your prediction for the final solution?

JW: In terms of the debt ceiling, the solution is going to be to continue raising the debt ceiling. Either that or eliminate the debt ceiling. I don’t know what can be done politically on either side there. But, the government is committed to certain obligations. It doesn’t make sense that it wouldn’t follow through and borrow the funds to pay what it has already committed to spend. As to bringing the U.S. fiscal circumstance under control at present, there simply is no political will by the president or by the aggregate sitting Congress to do so.

TGR: Isn’t it strange that instead of having this debate when they were voting about the budget and whether to spend the money, they are talking about it when it is time to pay the bill for the spending decisions already approved?

JW: No, we’re just dealing with a group of individuals in Washington who are politicians first, second and last. Most of them have very little real interest in the nation’s fiscal condition. They are looking at getting reelected and serving their special interests wherever they can. That has been evident to anyone who has watched the system in recent decades. There are some new, good people in Congress, but not enough to change things, yet. As Congress stands right now, there is no chance whatsoever of putting the U.S. fiscal house in order.

TGR: You look at a lot of numbers. We have really only talked about the debt limit. Anything else that you would like to leave us with that could impact the price of gold?

JW: Well, I think you have covered them. You are going to see ongoing weakness in the economy. The government is going to respond with more stimulus before the 2012 election, despite the so-called efforts at reducing the deficit. The Fed is going to ease liquidity more. All those actions to address the economic problems will tend to be inflationary, and that is generally positive for gold.

Read the entire article HERE.

by Tyler Durden
07/27/2011 10:43 -0400
ZeroHedge

Yes, indeed it is. While everyone and their grandmother is foaming at the mouth how both republicans and democrats hiked the debt ceiling for umpteen times over the past x years, the truth is that never before has the ratio of the proposed debt ceiling to the tax receipt ratio been as high as it is now. At nearly 6 times, this means that the top line (forget bottom line) cash inflows into the Treasury are 6 times lower than the current debt ceiling. And following the upcoming $2.5 trillion this number will surge to almost 8 times. So please ignore the next “pundit” who is complaining about the hypocrisy of not agreeing to an outright debt ceiling hike this time around – as usual they have no idea what they are talking about.

(Click Image for Larger View)

There is however one correlation that will continue to trend at 1.000:

(Click Image for Larger View)

Read the entire article HERE.

Jun 10, 2011
The Straits Times

BEIJING – A CHINESE ratings house has accused the United States of defaulting on its massive debt, state media said on Friday, a day after Beijing urged Washington to put its fiscal house in order.

‘In our opinion, the United States has already been defaulting,’ Guan Jianzhong, president of Dagong Global Credit Rating Co Ltd, the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.

Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies – eroding the wealth of creditors including China, Mr Guan said.

Mr Guan did not immediately respond to AFP requests for comment. The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond US$14.29 trillion (S$17.57 trillion) – but Republicans are refusing to support such a move until a deficit cutting deal is reached.

Ratings agency Fitch on Wednesday joined Moody’s and Standard & Poor’s to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.

A downgrade could sharply raise US borrowing costs, worsening the country’s already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments. — AFP

Read the entire article HERE.