The Goldwatcher

The Central Bankers Money Printing Song:

When he was a little nipper Ben Bernanke first learned about the Great Depression from his grandmother (The Goldwatcher page 60). At play school when I was a little nipper I learned the song  ’The More We are Together the Happier we will be.’  Let’s join my experience from those nipper days,  when we all believed in The Tooth Fairy,  with the lessons Bernanke learned from his Gran. We can call the new composition the Central Bankers Money Printing Song.  Here is how it goes:

The more we print together…..together…..together

The more we print together the richer we will be……

For your friends will be rich and my friends will be richer

The more we print together the richer we will be.

Of course by now we have learned to listen to  The Truth Fairy rather than The Tooth Fairy. And the messages from The Truth Fairy are that a global money printing spree can’t be a win win story and win win is anyway an oxymoron. Trust  in the fiduciary element of paper money is being lost. All that printing more can do is paper over the cracks.  (The Goldwatcher Page 189).  Yet we must expect far worse consequences if the global economy sinks into a depression again.  (The Goldwatcher Pages 181/2). And,  while investors can protect themselves from the worst ravages of a depression,  it’s not only prosperity in the Western World that’s at stake. Billions of poor people will suffer in developing and other economies and millions could starve to death in a severe global depression. It must be avoided literally at all cost.(The Goldwatcher Page 186). Hence, though an interest rate of 1% produces a negative yield on money,  if it helps fend off a depression there is a case to make that it’s the lesser of two evils.

So, how do we protect ourselves from all the money printing?

Gold can be minted but it can’t be printed:

Gold’s stateless money franchise derives from its value as a resource in limited supply. It can’t be produced without cost.  People all over the world are realising that with the global economy in an unnholy mess inflation and money printing are both on the agenda as part of the solution.

No surprise then that there are reports every day of gold coins being ’sold out’ at national mints and coin dealers. High premiums are being paid for physical gold that people can keep in their own control.  According to this report :

“One ounce and smaller gold and silver coins . . . ten-ounce and hundred-ounce silver bars (etc) have virtually disappeared from the marketplace. They’re in private hands now, and people are holding onto them, unwilling to sell them back into the market… When these coins can be found sellers are demanding (and receiving) premiums of up to 50% or more over the per-ounce spot price. ..Investors are getting a classic lesson in the laws of supply and demand. When demand increases for a declining supply of anything, the price tends to increase.’

The same law applies with money printing except its vica versa. Prices fall when there is too much supply. Only a few years ago when he was already a Fed Governor Ben Bernanke himself wrote :

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.“

The Bank of England’s  ’Financial Stability’ Report:

 Today’s s Bank of England Report  estimates losses to banks and other financial institutions worldwide at a staggering $2.8 trillion  The Executive Summary notes  instability was ’.. rooted in weaknesses within the financial system that developed during a global credit boom; rapid balance sheet expansion; the creation of assets whose liquidity and credit were uncertain in less benign conditions; and fragilities in funding structures.’

Are we out of the danger zone yet?

No.  The instability in the global financial system is described as “the most severe in living memory” by Sir John Gieve, deputy governor of the BOE,  in a speech on Rebuilding Confidence in the Financial System.  Beyond the banking crisis there are alarming risks of hedge funds and other leveraged investors being forced to liquidate holdings in tight credit markets. Insurance companies,   though they are not over leveraged, risk breaching capital adequacy problems and downgrades by ratings agencies if the value of their equity holdings continues to fall.  And private pension funds have been decimated.

The global solution:

The focus of attention is shifting now to the November 15th meeting at the United Nations to develop what commentators are calling a new Bretton Woods plan structured to avert a re-run of the Great Depression.  There is relevant analysis on the key isues that will need to be addressed in The Goldwatcher:

Chapter 4 : The Rise and Fall of the Gold Standard - Did gold cause the Great Depression?

Chapter 5: The Dollar Standard and ‘The Deficit Without Tears’ Is the dollar again America’s currency and everyone else’s problem?

Chapter 6 : The Economic Consequences of 9/11 and George W Bush : For how long will Asians go on Lending for Americans to go on spending?

Chapter 7 : The end of Cheap Oil and other Tipping Points to instability. Will alternative energy come to the rescue?

Chapter 8 : Globalisation and Global Economic Re-balancing?  Can the IMF avoid Global Financial Meltdown?

 Jim Rogers on financial instability and gold:

The immensely successful investor Jim Rogers’ challenges to the central banking establishment tend to be extreme. In this video clip challenging whether all the bail outs will work he makes a strong case for holding gold in times of financial instability.

Crisis reflation and charts that speak for themselves: 

The above charts published by The St Louis Federal Reserve illustrate  US Montary  Base Growth seasonally adjusted  since 1980 and  US Monetary Base Growth linear since 1984. The exceptional levels of money creation speak for themselves. Based on the above data  Shadowstats calculate US Monetary Base Growth year to year of 18%.

Though the charts speak for themselves three comments  and one question must be added. First the above data reflects only growth in the US.  Second Europe is following suite. Third Keynsian fiscal stimuli in 2009 are going to thrust monetary growth further into the stratosphere.

The question:

Will it be possible that reflation on this scale doesn’t lead to inflation ? ( See The Goldwatcher pages 184  to 191).

# Reference added after posting - Mineweb comment : ‘But if one wants to take a bet on the best performing commodity, as far as capital protection is concerned, in the current climate you have to look at the precious metals sector. While it may be well off its peaks gold has performed well in comparison with most other commodities and the stock market in general.’

Nouriel Roubini’s post on his Global Econominotor this morning starts

Panic’ May Force Market Shutdown. Friday Morning Update: Markets are becoming dysfunctional and S&P and DJIA futures trading already suspended.  Roubini’s comment continues:

‘Early Friday Morning Update: Yesterday Thursday I (Roubini)  gave a speech in London (see video) arguing that markets were in sheer panic and becoming literally dysfunctional and unhinged. I also made the point that policy makers may soon be forced to close financial markets as the panic selling accelerates.

Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. There is a free fall as most investors are rapidly deleveraging and we are on the verge of a a capitulation collapse. What matters now is only flows - rather than stocks and fundamentals - and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife. There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game.

And while panic and destabilizing market dynamics is the driver of financial markets even economic fundamentals are awful as investors are finally realizing that a severe US and Eurozone and G7 and emerging markets and global recession is coming and will be deep and protracted. As I have argued for a while equity prices may have to fall another 30% based on fundamentals alone before they bottom out. Why so? In a severe two year US and global recession S&P 500 firms earnings per share (EPS) could realistically fall to $50 or $60. If P/E ratios fall to 12 this implies the S&P 500 index falling to a 600 to 720 range. If P/E ratios fall - as likely in a recession - to 10 then the S&P 500 index could fall as low as 500 to 600. So even based on fundamental factors alone there is another 30% or more downside risk to US equities; and now, on top of such fundamentals, thee is also an ugly and nasty panic-driven market dynamics at work. 

I was accused yesterday of being alarmist arguing that policy makers may have to shut down financial markets. But today Friday Asian markets and in free fall and European markets are also in free fall. And US equties futures have fallen so much today before the US markets have opened that trading in the S&P futures index and the DJIA futures index has already been suspended in Europe as these indices reached their daily limits of a 5% drop. So it has taken only one day for my prediction that markets will be shut down to start to be realized. If - as possible -the free fall will continue today once US markets open then automatic circuit breakers on the S&P 500 may be triggered and trading may be stopped; and if - as likely - the capitulation panic continues today and in the next few days authorities may be forced - as I argued yesterday - to close down financial markets for a week or more in the next few days. We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies. So it is time to think about more radical policy actions and government interventions of the type I discussed in my London talk yesterday (see the video below that may be worth to watch in its entirety of 48 minutes). ’

Gold and financial market instability

Roubini’s dire warnings left many Goldwatcher readers asking what about gold?  Gold isn’t above $1000 where many gold bulls would like to see it.  But at about $700 gold has done far better than US equity markets pressured by hedge fund deleveraging and other funds having to raise cash for withdrawals.   While gold has reacted to dollar strength the following chart illustrates that in Euros amd Britsh Pounds gold has been holding its own.  Chart courtesy Sharelynx:

Chapter 4: The Rise and Fall of the Gold Standard associates with the question ‘Did gold cause the Great Depression?’  Ben Bernanke sides with the economists who accept Milton Friedman and Anna Jacobsen Schwartz’s conclusion that  flawed Fed policies at the time, including excessive concern with the nation’s commitments to the gold standard, caused the depression.   At Milton Friedman’s 90th birthday celebration, shortly after becoming a Governor,  Bernanke spoke for the Fed.  This was his message: ‘I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.’

Bernanke thought he had all the answers. He wrote at the time ’a smart central banker can protect the economy and the financial sector from the nastier side effects of a stock market collapse.’ (The Goldwatcher Page 61). We all know he was wrong on that one for a range of reasons.  Now,   92 year old  Anna Jacobson Schwatz has commented in a WSJ Interview , Bernanke knew history and should have responded differently when the present crisis erupted.  In her opinion ’ Today’s crisis isn’t a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war…I don’t see that they’ve achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job.”

Chapter 5: The Dollar Standard and the ‘Deficit without Tears’ associates with the question ‘Is the $ again America’s currency and everyone else’s problem?’ Opinions from several respected economists are discussed in this Chapter, including Nouriel Roubini’s criticism of the so called ‘Bretton Woods 2′  arrangements - the foundation for the convenient ‘America spends Asia lends’  pattern promoted by Alan Greenspan, George W. Bush and Ben Bernanke to give the illusion of prosperity.  Nouriel has been forecasting a breakdown of Bretton Woods 2 since the theory was first introduced. But  at an IMF Seminar he presented a year back he acknowledged that, in the event of a recesssion, once China  realised the extent to which it would be a loser following an economic collapse in the US,  it would be unlikely to ‘pull the plug’ on the US. (The Goldwatcher pages 86/87)  I had the opportunity to discuss this with him in June this year. That was still his view - and as far as I know still  is. It’s also consistent with the view of Frank Holmes in the post below.

# Note posted on 24.10.08 : In this Bloomberg Video of  Roubini mentioned above he argues that  if the US can’t import substantially from China it won’t have the benefit of vendor finance and will be unable to secure funding from China on favourable terms.

 Can We Save the World Economy? A Conversation with Geroge Soros, Nouriel Roubini, and Jeffrey Sachs 

This video of a discussion at Columbia Columbia University moderated by CNN’s John Roberts is essential listening for readers seeking a better understanding of the origins, potential results and possible ways out of the present crisis. Roubini (pictured above) is as usual straight talking,  pragmatic and he pulls no punches. George Soros,  who has been writing about the end of the era ‘of international expansion based on the dollar as the international currency’ explains the errors in policy and general perception that  led to the flawed belief that the market is always right. (The Goldwatcher Page 96.) Jeffrey Sachs reviews wrong  priorities over the the Bush YEARS..  A common thread they share is the need for a well directed fiscal stimulus - not only in the US, but globally. Again to an extent consistent  with the view expressed by Frank Holmes below.

For those concerned over the recent fall in the gold price it;s worth  listening carefully to George Soros’s commentary in the CNN video and not assuming the market is always right.

 Jacques Rueff & ‘The Deficit Without Tears,’ that could end in tears:

The French Economist Jacques Rueff, committed believer in a gold standard  and relentless critic of the dollar standard,  coined the phrase ‘deficit without tears.’ It describes the privileged status of the US under the Bretton Woods arrangements that made it possible for it to run a deficit that would never disappear while the dollar standard prevailed. (The Goldwatcher Page 87). Rueff’s conclusion was inevitably the dollar standard and associated deficit will lead to a global economic crisis that will end in tears and an event akin with the Great depression.  Rueff could, alas, still be proved to be right

Chapter 9: Gold price prospects and owning gold:

This Chapter on gold price prospects anticipates the Global Crisis of Confidence and ends with serious oncerns over both outcomes for the dollar and an economic crisis on the scale of the Great Depression. But it’s acknowledged  that strong leadership can still get the US and Word Economies back on track. That’s also very much the message I got from the interviews with Roubini, George Soros and Jeffrey Sachs. And it’s also what most of us, optimists a heart. expect.

But what if outcomes are not as benign as we hope they will be?  While no one can answer that question everyone can be better equipped to deal with the consequences of worst case scenarios by holding some gold as insurance against the unthinkable.(The Goldwatcher Pages 8-9)

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In an  interview with The Gold Report yesterday Frank Holmes, co-author of The Goldwatcher,  addressed key factors behind the financial crisis. He expects ’short term hesitancy in the upwatrd movement of the gold price until liquidity returns to the markets’ and  predicted gold will go up to $1000  or even $2000 over the next two years. The expected catalyst for the rise is a growing money supply following a change in Government policies.

Abuse of leverage was identified as the biggest culprit behind the market rout and the scale of the global financial crisis. In March this year The Goldwatcher blogged on the leverage disaster unfolding and hedge funds facing margin calls. 

These extracts from Frank Holmes’s Gold Rep0rt  interview are revealing:

‘… The combined impact of Sarbanes-Oxley, FAS 157 (mark-to-market regulations) and leverage abuse has cost New York its position as the world’s financial capital. No one expected this escalation of write-downs… Mike Milken spoke at a conference I attended last week in Hong Kong. He said that at the height of his career he was leveraged 4-to-1. Goldman Sachs now is leveraged 20 times, so a 5% mistake would wipe them out.  If you make a 2% mistake in the $500 trillion derivative market, that’s $10 trillion. What’s $10 trillion? Well, the world’s total GDP is $50 trillion. The total amount of U. S. dollars in circulation is roughly $15 trillion. A 2% mistake wipes out 20% of the world’s GDP…

..The dollar’s not going to collapse due to loss of Asian support. All countries will support the dollar. The reason is that they can’t afford for it to fall too far because then suddenly the U.S would be exporting products and not importing.

..All the currencies will slowly debase themselves against gold and keep the dollar as the currency for global trade…The number-one Asian analyst, Chris Wood, is advocating a 30% gold exposure to institutions. Now, this is the number-one brokerage firm in Asia and their research is excellent…It recommends a portfolio allocation of 30% gold:15% gold bullion and 15% unhedged gold stocks. When an analyst of his stature advises putting 30% of your portfolio into gold, you have to take note. We tell our clients to put a maximum of 5% into bullion and no more than 5% toward gold equities…

Last week the markets hammered every stock with liquidity. Many funds have been hit by this problem. Margin calls are driving this. It has nothing to do with the demand for gold or the supply and discoveries…Whether you have big deflation or big inflation driving the bear market, gold does well. If it’s just a normal cyclical inventory recession or whenever interest rates are above the CPI rate, gold doesn’t do well. Today, the Fed’s funds are below the CPI rate and the printing presses are busy….’

Extracts from an interview never tell the whole story. The Gold Report interview gives a better picture and is well worth reading.

Paul Krugman & Keynes: 

Nobel Laureate Economist Paul Krugman calls John Maynard Keynes (above)  his economic idol . In a 1998 article written for Fortune, in the wake of the Asian economic crisis. he wrote ’ Now I’m not saying that Keynes was right about everything. But the essential truth of Keynes’ big idea - that an economy can fail if consumers and investors spend too little, that the pursuit of sound money and balanced budgets is sometimes (not always!) folly - is as evident in today’s world as it was in the 1930s. And in these dangerous days, we ignore or reject that idea at the world economy’s peril.’ 

Chancellor Alatair Darling & Keynes:

The news now is that British Chancellor Alistair Darling has discovered Keynes.  In an October 17th F.T.article Ed Crooks writes  that falling asset prices and other economic problems being faced now are akin with those experienced in the Great Depression days. Keynes’s solutions , including greater public spending funded by borrowing are again ‘becoming popular and the criticisms that this will fuel inflation and raise budget deficits still being heard are being seen as increasingly irrelevant.’

Crooks accepts Keynes conclusion that economic expansion to get out of a depression ’should be seen as the normal state of affairs and the downturn as an “extraordinary imbecility”.  In the view of The Goldwatcher the kind of ‘extraordinary imbecility’ perpetrated  on the British economy in 1992 when Prime Minister John Major raised interest rates, unemployment soared, businesses were forced to the wall and property owners with negative equity lost their homes. Great damage was done and unnecessary hardship caused by the time Major abandoned his arrogance and stupidity. Major had little education and no economics training whatever.

Do economists have the cure for depressions nationally & globally?

In the Fortune article Krugman gives some insight on Keynes’s approach to economic depressions. ‘Instead of presenting depressions as a morality play, with villains and heroes, he portrayed them as a dangerous but treatable disease in an otherwise healthy patient. Indeed, he once expressed the hope that economists might someday be thought of like dentists–apolitical professionals brought in to resolve technical problems.’ A ‘reflationary rescue’ is discussed in The Goldwatcher Chapter 9. The suggestion is that  whenever policy makers confront inflationary or deflationary consequences they will see inflation as the lesser evil.

In an October 9th Guardian comment Professor Bary Eichengreen, another highly respected American monetary economist quoted in The Goldwatcher,  advances the case for an urgent fiscal stimulus beyond the national level to the global level. In 2004 he forecast that the end of the international monetary regime was not far off.  Now he explains  ‘The problem with using fiscal policy in a financial crisis is that it may do more to frighten than reassure investors. Worried that the government’s big budget deficits will ultimately have to be financed by printing central bank money, investors may flee the country, causing its currency to crash and creating even more serious financial problems.’  But as that won’t be the case if all governments  apply fiscal stimulus at the same time  Eichengreen supports  ‘coordinated fiscal (and not just monetary) action.’ 

# Reference added after posting: Article by Barry Eichengreen ‘Can the IMF Save the World’

Will the world’s leaders  ‘grasp the nettle’ when they meet in the US later this year following discussions between Presidents Bush and Sarkozy and the Head of the European Union Jose Manuel Barosso last weekend?  It’s likely that most attention will be focussed now on global plans until they are either concluded or fall apart. Chapters 4 & 5 of The Goldwatcher spell out the transition over the 20th century from a gold standard to a dollar standard and identify the fault lines in current arrangements that contributed to the global financial crisis being experienced now.

Gold, Keynes & Reflation: 

Not all analysts are sanguine about the effect of Keynsian policies and reflation.  Merrill Lynch are among those forecasting $1500 for gold as ‘the unintended consequence of the ongoing financial bailout will be a return of inflationary pressures to the commodity markets.”  John Embry, Chief Investment Strategist at Sprott Asset Management, reviews a wide range of vulnerabilities and risks, suggests they are ‘wildly inflationary’ and,  after careful and well argued analysis,  concludes gold prices will be propelled to a surreal price level.

It’s surely a situation where investors must hedge their bets. Probably it’s good all round that in the UK Chancellor Alistair Darling has discovered Keynes. But can we be sure his new enlightenment will make him more competent in the rescue than he was in the run up to the crisis? And what are the chances of a global package in time to head off a snowballing economic crisis?

With or without Keynsian stimuli there can be no quick fix for the global economic crisis. Gold in a portfolio hedges against  loss of value in paper currencies,  systemic faulures in banking and monetary systems,  political and administrative incompetence and geopolitical risks. Its stateless money franchise is assurance that it keeps it value globally.

#Reference added after posting:

Clear analysis on Keynsian economics by Roger Bootle:

 ‘I believe that banking institutions are more dangerous to our liberties than standing armies.

If the American people ever allow private banks to control the issue of their currency, first by inflation,  then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless  on the continent their fathers conquered.’
Thomas Jefferson 1802

* The above Chart is Copyright the Peter G Peterson Foundation and is published with their permission subject to the condition that the Foundation should not be seen as endorsing any views expressed in this commentary. 

Yesterday’s debate: A lost opportunity

The absence of any sense of urgency in the  final Presidential debate  yesterday was surreal. In the afternoon US and  global financial markets had crumbled. Trillions of dollars of savings were lost.  Yet, not only was there no sense of urgency,  there was also no focus on the nation’s perilous finances and its soaring debt burden. Granted there was some talk of change, sacrifice, hatchets and scalpels cutting into Government spending and the worst economic crisis since the Great Depression. All no doubt well intended and sincere. But was it enough for the President taking office in January 09 to claim a mandate for radical change and  require that Americans will start living within their means and even commence debt repayments? 

From the tone of the debate no such mandate was sought or granted. And,  without a clear mandate,  don’t expect radical change.  Any candidate committed to radical change would, along with other specific warnings, have spelled out the dire and explicit numbers reflected in the above chart published in the Peter G.Peterson Foundation Citizen’s guide along  with this opening comment:
‘Americans should only expect the federal government to do what they are willing to pay for it to do. During the last 50 years, we’ve balanced the federal budget only six times. Given our strong economy, lenders, both domestic and foreign, have thus far been willing to finance our national debt. However, in light of projected deficit and debt burdens, this may change.’

In a  nutshell the message  is that Americans have been living on borrowed money for too long and are now also living on borrowed time. Many others in the developed world, especially us Brits,  have being doing the same. Allowing for the $700 billion approved by Congress to bail out banks a few weeks back  America’s debt will shortly be $11 trillion.  Annual GDP is about $14 trillion. Rising Federal Debt is already almost 100% of a falling GDP!  On its present trajectory the debt burden is heading for the stratosphere. There’s going to be an unholy thud when it falls back to earth.

That’s not the message either candidate gave in the debate. The message was business as usual with some changes in who will benefit and who won’t from proposed taxation and healthcare plans. Both candidates were spared confrontations with reality.
 

The Peter G. Peterson Foundation:

The Goldwatcher expected The Foundation to play a key role in ensuring reality would be addressed in the electoral campaigns.  The President of the Foundation,  The Hon David Walker, former US Comptroller General, is quoted extensively in The Goldwatcher book. Since its launch The Foundation has been discussed in these blogs:  America’s Auditor Resigns :
Can David Walker and $1 billion of Pete Peterson’s money stop the dollar’s journey on the path to ruin? See also David Walker’s op-ed in the Financial Times

Origins of the dollar and financial crises:
#Chapters 4 & 5 of the Goldwatcher track the ‘Rise and Fall of The Gold Standard’ and ‘The Dollar Standard and the Deficit without Tears.’  Since the Bretton Woods Conference in 1944,  with the dollar entrenched as the de facto global currency,  US trade deficits have been the font for global liquidity. Analysis in The Goldwatcher explains how this gave rise to what became known as ‘a deficit without tears’ and why, after the excesses of the last 8 years, the deficit without tears appears to be on course to end in tears. Policy makers, central bankers and commentators are talking again about a new Bretton Woods arrangement. The background to these discussions is fully explained in The Goldwatcher.

Expect severe repercussions if the US Presidential candidates don’t seize the opportunity to secure a mandate for radical change before one of them takes office as President next year.  The status quo is unsustainable.

Gold and the lost opportunity:

Last night’s lost opportunity makes gold’s unique utility as insurance against financial market and currency risks even more compelling.

# Notes added after initial posting:

# Extended Bloomberg  interview with Nobel Laureate Paul Krugman on state of US economy on 18.10.08

Trivialising the issues with Joe the Plumber:

According to a Bloomberg article posted this afternoon Joe the plumber,  the Toledo, Ohio, man whose complaints about Barack Obama’s tax plan  were a big issue in the Presidential debate,  owes the state of Ohio almost $1,200 in back income taxes and has been taken to Court for the debt.  His real name is Samuel J. Wurzelbacher. At a rally in Downingtown, Pennsylvania today McCain even said `the real winner’  last night was Samuel J. - Joe the plumber. A national hero who doesn’t pay his tax?  (# Recent reports inform ’Joe’  - Samuel J - wasn’t a registered plumber - was in no position to buy a business and was phony all round.)

What an embarrassment!  What a waste of valuable time. An escape from the dark reality of people’s life savings being decimated in a stock exchange crash triggered by gross economic and fiscal mismanagement, incompetence, a regulatory system that never was and a  government complicit in the lethal debt explosion. 

Video links on Joe the Plumber;

# McCain takes up the cudgels for Joe the Plumber in the big debate; 

# Joe the Plumber challenges Obama  

 #The Court lien for Joe’s unpaid tax 

Stratospheric debt:

New York City’s National Debt Clock ran out of enough digit slots to record the staggering sum of $10 trillion breached a few weeks back.  The $ sign has now been changed to the  numeral ‘1′ to record debt at over $10 trillion.

$10,000,000,000,000 (Yes Virginia - 12 noughts).  

When the Durst family installed the clock in the 1980’s they were alarmed by a debt burden of $1 trillion.  A sum of money inconceivable to anyone except a mathemetician or a Zimabwian where, thanks to Mr. Mugabe’s success with hyperinflation, everyone was a billionaire and being a trillionaire didn’t make you rich.  However even Zimbabwians can’t conceive of ten trillion. This CNN Video clip traces the story of the debt clock and its association with  Reagomics - America  borrowing against future prosperity following  a programme George Bush Senior described as Vodoo economics and his son George W. Bush espoused with passion.

High praise for Gordon Brown’s big money  rescue:

‘Gordon Does Good’ Paul Krugman wrote on Sunday, the day before he was awarded a Nobel Prize,  commenting that Gordon Brown had ‘defined the character of the world wide rescue effort with other wealthy nations playing catch up.’ In The Goldwatcher posting on  the same day comments were included on how much money would probably be printed to restore functionality to the global banking system.  The guesstimate was  $4 trillion - similar to other guesstimates being made now.

Will the rescue plan work?

Nouriel Roubini’s RGE Monitor’s summary this morning opens with this comment:

 ’Seeing some green on tickers around the world, as opposed to the red that was flashing last week, sure feels good.  Credit market conditions also appear to be easing somewhat with respect to last week… But is this a just a blip or are we at the turning point? ’

According to Nouriel two essential components are still missing from the measures adopted so far.  The fist one would be a large fiscal stimulus plan in the form of old fashioned traditional Keynesian spending to boost aggregate demand.  “If such a fiscal stimulus plan is not rapidly implemented” he notes “any improvement in the financial conditions of financial institutions that the rescue plans will provide will be undermined – in a matter of six months – with an even sharper drop of aggregate demand that will make an already severe recession even more severe.”  Nouriel’s second requirement is a plan to reduce the debt overhang of distressed households via the institution of a new Home Owners’ Loan Corporation or similar construct.

Should we be thinking $6 trillion instead of $4 trillion will be printed for the rescue passages and fiscal stimuli?  To investors owning gold as insurance against financial market risks and protection against monetary inflation or hyperinflation a trillion one way or the other doesn’t really matter. Erosion in the purchasing power of paper money is already baked in the cake.

Gold is doing well:

Gold is below the magical $1000. But if you buy gold coins or bars now expect to pay a premium of as much as 25% above the daily spot price. You may well find yourself paying over $1000 an ounce.  Bear in mind also that gold was  over $930 before the dollar strengthened and at the current $931 price gold has soared in other currencies.

$931 translates into near record  prices in £ and euros - 

 £550.80 and €668.77.