“The collapse of the financial system as we know it is real, and the crisis is far from over...Indeed, we have just entered Act II of the drama.” - George Soros, 6/10/10
“I don’t fully understand movements in the gold price.” - Ben Bernanke, Chairman U.S. Federal Reserve 6/9/10
"So ill wind, blow away
Let me rest today
You’re blowin’ me no good"
- Ted Koehler, 1934
Dear All,
John Napier, chairman of British insurer RSA has lashed out at Barack Obama for engaging in what he terms a "double standard" in his execration of British based BP over the Deepwater Horizon oil rig disaster, contrasting it with the world reaction to continuing revelations of the U.S. financial industry's exportation of toxic financial products to western economies: SkyNews: 'Anti-British' Obama Attacked Over BP
"If you compare the damage inflicted on the economies of the western world by polluted securities from the irresponsible, unchecked greed and avarice of leading USA international banks, there has not been the same personalized response in or from countries beyond the US. Perhaps a case of double standards?"
The man's got a point.
To wildlife and the oceans there is no comparison but It is difficult to see how the final tally of the derivative sewage will prove less toxic and devastating than the BP spill insofar as the damage ultimately inflicted on humanity. In Vienna recently George Soros referred to the non-ending growth of credit default swaps as a "license to kill."
A former law school teacher, Barack Obama ran for president without having had any executive experience in either the private or public sector, although his presidential campaign often cited his work as a "community organizer." Residents of the Gulf states are now getting a first-hand look at those organizational skills. He is an academic who spent too much time in the faculty lounge. U.S.News & WORLD REPORT: World Sees Obama as Incompetent and Amateur
I do not mean to single Obama out. I'm a libertarian and chose not to vote in the last presidential election. My point is simply that just as the culture of corruption and government ineptitude did not begin with his administration, neither did it change with his arrival despite campaign promises of -- not just change -- but most particularly the sort of change one could believe in. It was an open secret that the Minerals Management Service was a corrupt and shady agency controlled by the oil industry that featured among other things, cocaine and sex parties between 'Regulator' and 'Regulatee' (or if you prefer insofar as the sex parties are concerned, 'Oiler' and 'Oilee'). Obama paid lip service to cleaning the agency up. Then in late March and to the chagrin of environmentalists, Obama announced that he had decided to expand offshore oil drilling and effectively as well, the authority of the MMS. NYTImes, 3/31/10: Obama Oil Drilling Plan Draws Critics Three weeks later the Deepwater Horizon rig blew up.
Through the Interior Department the MMS leased offshore drilling rights to BP and others without requiring any financial bonding and with virtually no oversight free of corrupt practices. Predictably, post-disaster and with floodlights now on him Obama announced an overhaul of the MMS. Predictably as well, with the horse now fully out of the barn there will be an overreaction in regulation and restrictions that serve no purpose. This is why we take our shoes off in airports. The only way to make government more responsive and responsible is to give it less responsibility.
A near century old piece of protectionist legislation is hindering the cleanup operation in the Gulf of Mexico. The most technologically advanced oil clean-up equipment available is not currently in the Gulf -- it is foreign built and in places such as Saudi Arabia, although it has been offered to the U.S. The Merchant Marine Act of 1920 (also known as the Jones Act) however requires all ships working in U.S. waters to be built in America. President Bush used his presidential emergency authority to suspend the Jones Act in the aftermath of Hurricane Katrina. President Obama however has thus far resisted offending the unions by suspending the Jones Act which is depriving the Gulf of the most state-of-the-art clean-up equipment available.
You'll recall a New York Times front page propaganda piece that appeared on Aug. 30th: 'As Banks Repay Bailout Money, U.S. Sees a Profit.' In my post of 9/4/09 'China Stares Down Derivatives' I called this utter BS. Here's how things have worked out since: CNBC: More Than 90 Banks Miss TARP Payments
If I ran the world it would it would look pretty much like the one Nassim Teleb describes. NewYorkerCurrents: Risk and Robustness (Click on the tab "New Yorker Currents" to access the video). Taleb's analysis is spot on. Note his remarks on how business schools teach all the wrong things about finance.
Lexapro Alert: Depressing and quite mind-boggling, really. NYTimes: Budgetary sleight-of-hand
On to gold...
Refer to this on days when the central banks and bullion banks slam silver and gold: John Embry: 17 Reasons to Own Gold
Financial firms prefer to screw their clients by relying on a) the tried and familiar, and b) that which offers the widest spreads, highest fees and commissions. Gold and silver run antithetical to those interests. The increasing awareness and interest by the public in precious metals however is forcing Wall Street -- ever so reluctantly -- to allocate investor capital to the sector, although it is invariably to the quasi-fraudulent (and physical demand diverting) ETF's
Keep your ear to the tracks and not in the direction of Wall Street pundits. The big picture is what matters. Here is the trend:
Businessweek.com: Medvedev Pushes Ruble Reserve Currency to Cut Dollar Dominance
EmeratesBusiness: WGC more than doubles estimate of Saudi gold hoard
The trend is only going to accelerate. The fiat currency game is over. Do not for one minute believe that Mr. Bernanke, as quoted at the top of this post does not fully understand what the movement in the gold price means.
What has happened is not reversible. What is coming is not good. This is not a mere financial crisis. This is the breakdown of the western currencies.
There is going to be panic buying of gold and silver as what has been laid out in the archives of this blog continues to come to pass. In the interim there is simply going to be a marching higher of the gold and silver price with interludes of suppression. The gold and silver stocks are remarkably cheap. Despite their gains, given gold's new record high they are practically comatose. Their coming moves will amaze. Don't trade. Do not take profits. Stay put for the foreseeable future.
All the best,
Jeff