As the US Dissolves: Mad Max Monday

Lots of gloom to be found as witnessed in the two stories below, counter-balanced by the shameless cheerleading on the financial news networks that are celebrating the rally in US equities and the economic recovery.

Both points of view are a bit extreme and probably unrealistic for my palate, although I am in a sufficiently grumpy mood having spent the weekend cleaning, waterproofing, painting, and reshelving our storeroom, workroom, and pantry. Herself and the children return this evening from holiday, and so the repairs must be completed before the horde is once again underfoot. Oh head is spinning from fumes, and oh my aching back. lol.

I have to wonder if the mass of the people will ever do something and react to the abuses of government in cooperation with the corporations, or if they will seek to lose themselves in the day to day of their lives, allowing a minority to set their course. The next twelve months should prove interesting, especially around the mid-term US elections. Although eyes are on the US, the UK and Europe will likely lead the way.

When Globalism Runs Its Course...
The Year America Dissolved
By Paul Craig Roberts

It was 2017. Clans were governing America.

The first clans organized around local police forces. The conservatives’ war on crime during the late 20th century and the Bush/Obama war on terror during the first decade of the 21st century had resulted in the police becoming militarized and unaccountable.

As society broke down, the police became warlords. The state police broke apart, and the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.

The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money....

Read the rest here

Emergency Care Drugs In Short Supply
Warren E. Pollock

CFTC's Bart Chilton On Financial Reform, Position Limits, and Curbing 'Disruptive Practices'

Actions will speak much louder than words, especially given the many disappointments in the past from the SEC and CFTC. Position limits are a good idea. Let's see how long banks like JPM and HSBC have to implement them if they are covered at all. And as for 'disruptive practices' in the market, I will be impressed if Goldman Sachs and Citigroup are ever called out for their abusive market practices in the US as they have been in Europe and Asia.

I like Bart Chilton, quite a bit actually. If he delivers on these promises, I would work for him to be elected or appointed to higher office. But after the great disappointment of Obama, it will take actions first to gain people's enthusiasm for a reformer.

We are all for you Bart, but now you must deliver.

Here is an introduction to this presentation by Bart Chilton from another good guy, GATA's Chris Powell:

"The member of the U.S. Commodity Futures Trading Commission who has been advocating imposing position limits on traders in the precious metals markets, Bart Chilton, has made a video explaining why he thinks the financial regulation law just enacted by Congress and President Obama promises great progress, particularly in making the commodity markets freer and more transparent. The law, Chilton explains, requires the CFTC to establish position limits and authorizes the commission to prosecute "disruptive trading practices." Chilton says he is especially pleased with that, because the commission's market manipulation standards have failed almost completely for many years.

Chilton has been amazingly conscientious on the precious metals manipulation issue and has been amazingly responsive to gold and silver investors who have complained to the CFTC about market manipulation. He'll need their support as the CFTC writes the position limits regulations required by the new law. The big commercial shorts are sure to be heard as the commission continues to take public comment, so gold and silver investors can't let up yet."

The Health Care Bill Change in 1099 Reporting Requirements Does NOT Target Gold and Silver

I had originally included this in my weekly gold and silver market wrap up. But I have received so many emails from alarmed readers about the topic that I thought it would be useful to give it a separate blog entry that is linkable, so it would be easier to answer those who express concern.

Those who originally raised this issue of a change in the law stated it rightly, but since then it has been fanned into a falsehood and a bogeyman, far beyond the proportions of its original scope and intent.

It is true that transactions in gold and silver and more particularly rare coins were exempt from 1099 reporting under the previous 1099 MISC rules. But they were always reportable and taxable on one's tax returns. Goods were exempts, but services were not exempt from 1099 MISC reporting and the thresh hold for them was $600. This law primarily applied to the self-employed and small businesses.

The change in the law removed the exemption for all goods, and not just for gold and silver and rare coins and collectibles, which are a small if not minuscule percentage of all commercial business transactions in goods and services.

It is well and good to remain vigilant to encroachments of the government on the rights of individuals and of private property. But one must also be on guard against becoming an unthinking member of a mob, reacting to those who would play on their emotions for their own ends.

Insidious men will use any issue, any crisis, any emotion, and turn it to their devious intentions. The central bankers and politicians began selling and leasing gold and property that did not belong to them but to their people, on the principle that controlling the price and the markets was a necessary instrument, a tenet, in their financial engineering, according to the counsel of their well-credentialed advisors. This was turned to the profit of the few, the financiers, and took on a life of its own, and became a looting of public wealth, and an abuse of property. Before it ends these abuses may become more egregious and widespread. It is no vain effort then to be on guard against them.

And as for us in times of official deceit and the abuses of the few, we must therefore hold even more firmly to the truth, and make every effort to find it, or risk being swept away in the swell of retribution and the restoration of justice that may turn to madness unbidden.

The Change in 1099 Reporting Requirements in Section 9066 of the Health Care Bill Does NOT Target Gold and Silver

On another matter, there is some misinformation creating concern, bordering almost on mild hysteria at times, about a change that was made in the Health care Bill Section 9066 regarding the reporting of sales of over $600.

There are those who say that the purpose of this law is to track the sale of gold and silver.

A decent discussion of the change is the law is available here and here.

The change in the law does NOT 'target the sale of gold and silver.'

I don't like the provision and think it was written badly, generating senseless paperwork for small businesses in a desire to make more business to business transactions subject to 1099 MISC for purposes of income reporting. I suspect and would hope that the interpretation of this law and its requirements will clarify the issues. If this change in the requirements includes what are essentially retail transactions then it is very badly written indeed.

But the point I wish to make here, and I want to be very clear on this, is that this change in the law is NOT specifically targeting gold and silver sales. It is targeting unreported income from transactions of any sort, the vast majority of which are no more sinister than common supplies, computers, and routine business goods. And coin sales in particular may be affected, along with quite a few other things.

Some might correctly say that this provision targets 'cash businesses' where income is easily hidden and unreported. So if one has been cheating on their taxes and hiding income, this change in the rules will most likely be an inconvenience. There are other more substantial issues with the burden placed on small businesses and the need to generate 1099's.

But this does not specifically target the sale of gold and silver, the income from which has always been taxable, and reportable.

The reporting requirement seems to have an unusually low thresh hold. This is has it has always been, it is primarily the exclusion for goods that has been eliminated.

I do not imagine that the IRS wishes to be inundated with useless mountains of 1099's. I do not believe they even have the capability of processing them effectively.

And I have to wonder why the Democrats slipped this change into the health care bill essentially chasing small loopholes for what is really small change, 20 billions over ten years, when there are so many large loopholes yawning wide open for the use of their corporate benefactors and the super wealthy.

Yes, that was a rhetorical question. The wealthy, who sit contentedly, fat on the spoils of their deceptions, and their bought politicians and judges, still greedy for more to be squeezed from the many, should well bear in mind the consquences of their perversion of the law in these wise words from the American revolution:

"When the rich plunder the poor of his rights, it becomes an example for the poor to plunder the rich of his property, for the rights of the one are as much property to him as wealth is property to the other, and the little all is as dear as the much.

It is only by setting out on just principles that men are trained to be just to each other; and it will always be found, that when the rich protect the rights of the poor, the poor will protect the property of the rich. But the guarantee, to be effectual, must be parliamentarily reciprocal."

Thomas Paine

SP 500 September Futures - Goal of 1100 Reached Inspiring Euro Confidence, Or Not

The Merry Marketeers were able to coax the SP futures to the 1100 level, in a show of support for the results of the Euopean Bank Stress Tests. Huzzah!

The results were rather anemic, even given the somewhat unrealistic nature of the tests.

I can understand that they did not include a sovereign default by the likes of Greece, but that they included only the banks' trading portfolios, and not their commercial loan portfolios, seemed almost astonishing.

Reggie Middleton does a good job discussing the European Stress Tests here and here

But in the meanwhile, the increasing trivialization of the capital markets by the financial engineers in the service of their nonsensical schemes seems more alarming than anything else I could imagine.

Can they do what they did in 2005, and break the market out to the upside and inflate yet another financial asset bubble? They may very well do this. And it will once again end badly, much worse than the last. But why should they care, or stop, while they continue to become rich?

Gold Daily and Weekly Charts; Silver Charts; 1099 Change Does Not 'Target Gold and Silver'

There was quite a bit of central bank concern over the results of the 'stress tests' for the European banks.

I will not address the tests themselves here, but let it suffice to say that they only involved the banks' trading portfolios, and not their loan portfolios, which could give you some idea of their lack of rigor. And 7 of 91 banks failed.

But the spokesmodels on Bloomberg were remarking, frequently, that the markets are pleased by the tests and the crisis is over because 'stocks are higher,' and 'gold was lower.'

The lies and market manipulation will continue until confidence is restored.


Gold Daily Chart



Gold Weekly Chart



Silver Weekly Chart



Miners (HUI) Weekly Chart

Gold Daily Chart

“Central banks stand ready to lease gold in increasing quantities should the price rise.”

Sir Alan Greenspan, US Federal Reserve Bank, 24 July 1998


"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

Sir Eddie George, Bank of England, September 1999


"The schools would fail through their silence, the Church through its forgiveness, and the home through the denial and silence of the parents. The new generation has to hear what the older generation refuses to tell it...The only value of nearly five decades of my work is a warning to the murderers of tomorrow, that they will never rest.”

Simon Wiesenthal

"Who is our Simon Wiesenthal? Who will track down these criminals in the coming months, years, decades? Perhaps we need some old men to spend their last years in prison after thinking they effectively fleeced the world. Perhaps the cycle of crises can be mitigated if the prosecution for these particular crimes continues for decades and every so often Wall Street is reminded that there is no sanctuary and that individuals will be hunted down at whatever time in whatever place."

The Fourteenth Banker, Financial Crime, the Statute of Limitations, and Simon Weisenthal

SP 500 September Futures at the Close

UPS said some positive things after their good earnings results, and so the market rallied.

The character of this rally is questionable, very obviously thinly traded and highly responsive to headlines and technical considerations. But it is what it is, and still hurts if you are on the wrong side of it. The intermediate trend is still lower following the economic news which is discouraging.

We are in short term rally mode, and a break out is threatened. No matter the trend, volatility must be managed. If you cannot do it, better to stay out completely.

More earnings after the close including Microsoft. Tomorrow brings Schlumberger, McDonalds, Ingersoll-Rand, Honeywell, and Ford.

China and the Goldfinger Syndrome

I have had some interesting discussions recently with correspondents about the problem which China has with its very large US dollar reserves.

To summarize what I think, China is attempting to diversify their portfolio of US Treasury dollar holdings. They are obviously accumulating 'real goods' including stockpiles of basic materials, gold, silver, oil and investments in the means of production in their own region and in key regions around the world.

This is more difficult than it might appear on the surface. Real goods are often strategic, and governments are sometimes reluctant to allow them to be acquired by a government considered a potential threat. The first difficulty is the strategic importance of some assets, such as the China's offer for the purchase of Unocal.

But there is also a need for confidentiality, stealthiness if you will. If word were to leak out that 'China is dumping its Treasuries' there would be a run on the market and the Chinese could lose a portion of their reserve wealth rather quickly.

Now, would it matter. Well, yes. It would matter because US dollars are still the currency of choice for most international trade including the all important international commodity, oil. If you think that philosophically dollars have no value because they are just paper, I would be more than happy to dispose of them for you. Limited time offer, of course.

I also posited that China, while accumulating its real goods quietly against the constraint of perturbing the markets, could do short term hedges against the less catastrophic scenario of further dollar devaluation by going into the very deep and liquid financial assets markets, and hedging risk with CDS and other obvious investments including shorts of various types.

As anyone who has attempted to acquire a company or take a substantial position in or out of an asset or company, at some point you can affect the price, making other participants aware that the asset is in play, and end up selling or buying against yourself. In the case of China it could also trigger a run on the bank of the US, which is an immediate endgame.

With regard to the use of financial instruments, someone raised the obvious issue of counter party risk. Well, of course it is an issue. But less so if you are merely hedging a portion of the portfolio for the devaluation scenario, and not a catastrophic default. And the choice of counter parties can be managed to some degree. It is a big world out there and the Swiss are always open for a bet.

But correctly, if there is a catastrophic failure of the dollar, they will be carrying banks and brokers around the world out on stretchers and almost all financial assets, or bets, will be in default. Those who are holding leap puts as insurance against a collapse may as well be holding food vouchers for a restaurant in Brigadoon.

China would most likely not lose the value of its reserves in the extreme case of a US default, even if every one of their remaining Treasuries and the financial hedges on those Treasuries became worthless. Why?

It's the Goldfinger Syndrome. As you may recall, Auric Goldfinger did not wish to steal the US gold supply, at that time the currency of the nation, from Fort Knox. He merely wished to eliminate it, making his own substantial gold holdings significantly more valuable. It is a form of increasing value through deflation, a concept that is much more familiar these days thanks to quite a few amateur economists patiently waiting for the US dollar to gain in value because of it.

If the US were to actually default, the value of real goods, from basic materials to gold and silver and oil, would absolutely soar in terms of dollars of course, but in most other fiat currencies of the developed world as well. The perception of the risk of a fiat currency would border on hysteria.

Returning to the deflation meme, the elimination of US financial assets from the 'world currency base' would make all the other currencies extremely valuable, and China would be flush with them. For real goods are a form of currency suitable for the exchange of wealth. They are merely less liquid, and not often used as the unit of value anymore. But real goods are a form of currency. They just cannot be printed, except perhaps on the Comex and at the LBMA it appears, and they would be absolutely discredited and out of business.

So, that is something to think about. China need do nothing but slowly and stealthily acquire real goods, and hedging their positions along with way with financial instruments, waiting for the US to play itself into some beneficial outcome for them. I think the financial hedging is important because of the relative illiquidity of some of the real goods, and the difficultly of acquiring them in sufficient supply without triggering a 'run on the dollar.' The financial markets are deeper and more discreet than the markets for real goods.

The problem facing the holders of dollars is not inflation or deflation, per se. They are merely particular manifestations of currency risk, and the uncertainty of holding substantial assets denominated in a fiat currency that is risky, meaning something abnormal or unstable in the classic sense of the term. A serious deflation or inflation are both unusual and risky.

This is not hair-splitting. Rather it is essential to understanding why gold can increase in value during periods of both a significant deflation and inflation, which on the surface seem like opposites. In fact they are similar if view in the terms of probability. They are both the opposite of currency stability, what I call currency risk. The further one gets out on the probability curve with a currency, the better gold looks in relation to it. Gold is the ultimate in stability, almost inert, and highly resistant to corrosion and decay, bordering on the timeless, comparatively uniform in its supply.

There are those who say that when the time comes, and what is happening becomes apparent, they will buy some real goods, foodstuffs, land, gold and silver. I can assure you that when that time comes, there will be little or none available at almost any price. One has to have lived through a currency crisis first hand to understand the phenomenon.

You are holding a currency in decline and there is little or no place to spend it except as a throwaway, because no one wants it anymore. Barter becomes predominant, and any hard currency is king. This is how it was in Russia in the 1990's with the old rouble before it finally imploded, at which time I was thankfully out of country. It was quieter than you might imagine, despite the headline antics of their mafia, and a sense of quiet desperation as people watched their life savings simply evaporate.

There is almost no doubt in my mind that this is how the Chinese are playing this, and certainly Russia and a few others as well, who are playing the long game. It explains some of the recent moves in price of certain forward looking assets, a phenomenon so little understood by the many, even now.

I still see the greater probability for the US as a devaluation and a stubborn stagflation for quite a few years. But the policy errors being committed by Bernanke and the Obama Administration are making the possibility of an actual collapse more likely than I would have thought even six months ago. I suppose it is never well to underestimate the self-destructive tendencies of obsessive greed.

See also The Last Bubble: The Problem of Unresolved Debt in the US Financial System and Currency Wars: Selling the Rope

Dean Baker: Commission on Fiscal Responsibility and Reform Was Doomed From the Start

I thought this interview with Dean Baker was interesting. I obviously do not agree with everything that he says, especially regarding the deficits and the attitude of the markets towards them. The US markets are far removed from being efficient mechanisms of capital allocation these days, and as such are unreliable indicators of just about everything except the latest trading fads and speculative excess.

But Mr. Baker touches on one point that gives me much room for thought, and that is the enigmatic president, Barack Obama. His appointments have often seemed eccentric, especially for someone who was elected on a wave of reform sentiment. He largely threw his mandate away in the first year on the very controversial health care reform bill that pleased almost nobody, and was obtuse in its requirement for individuals to purchase private health insurance from monopolistic health management corporations.

But his seeming obsession with trying to teach the seasoned politicians (whoremasters all) of Washington how to act in a bipartisan and selfless manner, as if they would take the least guidance from such a relatively inexperienced upstart, seems designed to fail. It is becoming increasingly difficult to take Obama seriously in matters of reform.

The sad part is that as bad and ineffective Obama and his cronies may be, the same and more can be said of the opposition Republican party. Some people are retreating into mere partisanship these days because they cannot deal with the uncertainty of the situation, but the sad truth is that America is lacking in leadership capable of uniting the people except through greed and fear, a dangerous cocktail in troubled times.

The US has a range of serious problems, but the greatest of these is political reform, and the return to Constitutional, rather than corporate, governance.

"Baker says that the committee, titled the National Commission on Fiscal Responsibility and Reform, was doomed from the start because of the strong views of the co-chairs - Erskine Bowles and Alan Simpson. Although the commission was designed to be bipartisan, Bowles, the Democratic co-chair, is not a typical Democrat. He is a director at Morgan Stanley, one of the banks benefiting from a Wall Street bailout.

Baker says that both co-chairs have expressed hostility toward Medicare and Social Security, two of the nation's core social programs and demonstrated a loose grip on reality. Alan Simpson, the Republican co-chair and former Senator from Wyoming, said that he wanted to cut off Social Security payments to senior citizens who drive their Lexuses into their gated communities.

Baker counters that while Simpson and his friends may be wealthy, most senior citizens are not, noting average person over 65 lives on less that $30,000 a year. "It's like appointing someone you knew had racist views to head a civil rights commission," Baker says. "It's not the sort of thing you'd like to see."

Postscript: Someone sent this commentary to me, and I got a 'kick' out of it. Obama to Run as Republican in 2012

Obama does actually resemble a moderate Republican of the old school in most of what he does. That could be attributable to his desire to fit in and please the powers that be, and a further indication of the general shift to the right that the US has taken over the last 30 years. It in no way detracts from his incompetence and ineffectiveness. He reminds me of a classic modern American CEO, a well credentialed and highly articulate empty suit, a nicely appointed lump who serves his 'backers' from beginning to end and deals primarily in connections and privilege, rather than effectiveness and results. He is the new and improved version of politicians compared to the dreadful political machine troll like a Richard Shelby, or the smarmier car salesmen types like a Bob Corker, Barney Frank, or a Chris Dodd.

Gold Daily Chart; SP 500 September Futures Chart: US Dollar Long Term Chart

SP 500 September Futures Daily Chart

Still standing at the crossroads.



Gold Daily Chart

Hanging on to its active formation in the face of some determined resistance and repeated bear raids.



US Dollar Intermediate (monthly) Chart

A Bull Rally in the Dollar? Maybe, but spikes higher on euro short squeezes are not a stable platform for a sustained currency rally. Has to break out through overhead resistance and put the spike into thie trading range.



Silver Daily Chart

Bouncing along the 200 DMA looking for the strength for a sustainable rally. Interestingly enough the 50 DMA is overhead resistance. Personally I think this is a possible marker for a multi-party price manipulation. Seems rather convenient.



Mining Stocks HUI Index Weekly Chart