Wednesday, July 13, 2011

Bernanke: Fed would supply more stimulus if needed


Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank is prepared to provide additional stimulus if the current economic lull persists.

Delivering his twice-a-year economic report to Congress, Bernanke laid out three options the central bank would consider.
Bernanke said the Fed could launch another round of Treasury bond buying, the third such effort since 2009. 
It could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more.

The Fed could also be more explicit in spelling out just how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed's efforts to continue supporting the economy.

Stocks jumped after Bernanke signaled the Fed's willingness to take more steps to boost the sluggish economy. The Dow Jones industrial average rose 139 points in early-morning trading and broader indexes gained.

Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony.

Bernanke also said it was possible that inflationary pressures spurred by higher energy and food prices may end up being more persistent than the Fed anticipates. He said that the central bank would be prepared to start raising interest rates faster than currently contemplated, if prices don't moderate.

Bernanke's comments about inflation spoke to concerns expressed by some regional bank presidents at the Fed. The have criticized the Fed's bond-buying program, saying it has increased the risk for higher inflation.

The Fed has kept its key interest rate at a record low near zero since December 2008. Most private economists believe the Fed will not start raising interest rates until next summer. And some say the Fed won't increase rates until 2013, based on the slumping economy.

Bernanke was testifying after the government released a dismal jobs report last week.

The economy added just 18,000 jobs last month, the fewest in nine months. And the May figures were revised downward to show just 25,000 jobs added — fewer than half of what was initially reported. The unemployment rose to 9.2 percent, the highest rate this year.

Companies pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up wiht population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

At the June meeting, the central bank lowered its economic growth forecast for the second half of the year and said unemployment wouldn't fall below 8.6 percent this year.

The Fed also agreed at that meeting to end on schedule its program to boost the economy through the purchase of $600 billion in Treasury bonds.

The bond-buying program was the Fed's second round of "quantitative easing." That's a term economists use for a tool the Fed can use to drive down long-term interest rates by purchasing Treasury bonds.

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Banks caution over upbeat cotton supply forecasts


Investors may have taken too downbeat view of cotton price prospects from a key report which, citing lower consumption prospects, raised the estimate for world stocks at the close of 2011-12 by nearly 3m bales.
Rabobank cautioned that, while cotton prices were likely to "continue to ease", inventories "remain thin", even after an upgrade to 51.0m bales in the US Department of Agriculture's latest influential Wasde crop report.
The report implied a stocks-to-use ratio - a key measure of a crop's tightness – of 44%, signalling easier supplies than in 2010-11, for which the ratio comes in at 39%, but still making it the third-tightest season since 1994-95.
And even this made some assumptions on world production, pegged at a record 123.2m bales, which some analysts warned may prove too generous.
Big two producers
"We are still cautious about the large Indian and Chinese production forecasts," Goldman Sachs said, besides questioning the USDA's downgraded consumption estimate.
USDA officials forecast Indian harvest – the world's second biggest - rising 10.2% to 27.0m bales, despite concerns within the country over poor rainfall in Gujarat and Maharashtra and Andhra Pradesh, which account for more than 75% of its production of the fibre.
And they stuck by an estimate for production in top-ranked China rising 8.2% to 33.0m bales, despite a downgrade last week to an industry forecast for sowings, seen rising only 5.2%.
Goldman restated estimates of New York's near-term cotton contract standing at 125 cents a pound in both three months' and six months' time, before easing to 100 cents a pound in a year.
Large downgrade ahead?
Australia & New Zealand Bank analysts held out the prospect of a further downgrade to the USDA estimate for America's crop, even after a cut of 1.0m bales, to 16.0m bales, on Tuesday.
The downgrade factored in a higher figure for sowings, offset by crop losses of a record 30% thanks to "historic drought conditions, mainly in Texas", the top cotton-producing state.
ANZ said: "This latest revision to production comes with the USDA still making no change to US cotton yields," which were kept at 800 bales per acre, in line with last year's.
"This now sets the scene for US cotton yields to be revised in August, with a high probability of another large US production downgrade."
New York's best-traded December cotton contract stood 0.9% higher at 105.36 cents a pound at 09:30 GMT.

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Gold Etf channell ...

by Kimble Charting Solutions

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Is a 50% decline enough?

by Kimble Charting Solutions

Dollar breaks ... now it is testing Fibonacci resistanca

by Kimble Charting Solutions

Politicians Repeating Public Proclamations & Denouncements of Early-1930s

In light of the monetary woes that have spread across the globe, I thought I’d demonstrate that the continuing montage of oratory acrobatics coming from our politicians are not a new thing. Here, I show a few examples of the demagogic proclamations that emerged during the early-1930s.

First of all, I should say that the following statements are not taken arbitrarily from the internet. As you may know, there are all kinds of versions of ‘Executive Order 6102′ (banning private gold ownership) and so on. Although I admire the conspiratorial skepticism of my fellow online publishers, I fear that a great number of these sites accidentally publish things that are not true. Even if they are true, there seems to be .

So, just to get things clear; all of the quotes below are from the ‘Federal Reserve Bulletins’ available in pdf form for all to see courtesy of the St Louis Fed (and, in particular, courtesy of the Federal Reserve Archival System for Economic Research department). Incidentally, these bulletins are just fantastic — they allow one to gain a clear view of the historical path of social mood, the intellectual biases of the past and much more. Personally, I have spent long hours looking through some of these and I would recommend reading some of them if you ever come across an hour or two to spare.

The Setting:

As can be seen on the chart below from Elliott Wave International, after a decade of resource misallocation via the the excessive accumulation of debt, the stock market underwent a truly colossal crash. As we all know, this tore through the wider economy with a vengeance.

  • I'm being intentionally brief because, especially over the past few years, people have written extensively about this period in history. If you want to understand more about the 1920s and 1930s, I highly recommend Murray Rothbard's fantastic book, America's Great Depression. It's available for free at the mises institute or at the book store.
  • The emphases on the quotes below are ours.]

March 1933: – Wooo! Bank Holidays!… Hmm, wait, actually…

On the morning of February 14 the Governor of Michigan declared a bank holiday to February 21,for the preservation of the public peace, health, and safety, and for the equal safeguarding without preference of the rights of all depositors.” This holiday in Michigan was extended, in effect, on February 21, and on February 25 a bank holiday was declared in Maryland, followed within a few days by similar action in a large number of other States… On the morning of March 4, the Governor of the State of New York issued a statement proclaiming Saturday and Monday to be bank holidays. Similar action was taken in Illinois, Massachusetts, New Jersey, Pennsylvania, and elsewhere. On March 4, therefore, which was a Saturday, the banks in almost all the States were either closed or operating under restrictions.

March 1933: – I, Hereby do declare, with the yada yada yada power invested in taken by me, …

On the morning of March 6, 1933, the President of the United States issued the following proclamation:
“Whereas there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and
Whereas continuous and increasingly extensive speculative activity abroad in foreign exchange has resulted in severe drains on the Nation’s stocks of gold; and
” Whereas these conditions have created a national emergency; and
” Whereas it is in the best interests of all bank depositors that a period of respite be provided with a view to preventing further hoarding of coin, bullion or currency or speculation in foreign exchange and permitting the application of appropriate measures to protect the interests of our people; and
” Whereas it is provided in section 5 (b) of the Act of October 6, 1917 (40 Stat. L. 411), as amended, ‘That the President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange and the export, hoarding, melting, or earmarkings of gold or silver coin or bullion or currency * * * ‘; and
” Whereas it is provided in Section 16 of the said Act ‘that whoever shall willfully violate any of the provisions of this Act or of any license, rule, or regulation issued thereunder, and whoever shall willfully violate, neglect,or refuse to comply with any order of the President issued in compliance with the provisions of this Act, shall, upon conviction, be fined not more than $10,000, or, if a natural person, imprisoned for not more than ten years, or both;
“Now, therefore, I, Franklin D. Roosevelt, President of the United States of America, in view of such national emergency and by virtue of the authority vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim, order, direct and declare that from Monday, the sixth day of March, to Thursday, the ninth day of March, Nineteen Hundred and Thirty Three, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions shall be suspended. During such holiday, excepting as hereinafter provided, no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever.
” During such holiday, the Secretary of the Treasury, with the approval of the President and under such regulations as he may prescribe, is authorized and empowered (a) to permit any or all of such banking institutions to perform any or all of the usual banking functions, (b) to direct, require or permit the issuance of clearing house certificates or other evidences of claims against assets of banking institutions, and (c) to authorize and direct the creation in such banking institutions of special trust accounts for the receipt of new deposits which shall be subject to withdrawal on demand without any restriction or limitation and shall be kept separately in cash or on deposit in Federal Reserve Banks or invested in obligations of the United States.
“As used in this order the term ‘banking institutions’ shall include all Federal Reserve banks, national banking associations, banks, trust companies, savings banks, building and loan associations, credit unions, or other corporations, partnerships, associations or persons, engaged in the business of receiving deposits, making loans, discounting business paper, or transacting any other form of banking business.
“In witness whereof, I have hereunto set my hand and caused the seal of the United States to be affixed.
“Done in the City of Washington this 6th day of March—1 a. m. in the year of our Lord One Thousand Nine Hundred and Thirty-three, and of the Independence of the United States the One Hundred and Fifty-seventh.
[SEAL] “FRANKLIN D. ROOSEVELT “By the President:
“Secretary of State”

March 1933: – ‘This legislation is necessary, and I do mean: NECESSARY!’

“Our first task is to reopen all sound banks. This is an essential preliminary to subsequent legislation directed against speculations with the funds of depositors and other violations of positions of trust.
“In order that the first objective—the opening of banks for the resumption of business—may be accomplished, I ask of the Congress the immediate enactment of legislation giving to the executive branch of the Government control over banks for the protection of depositors; authority forthwith to open such banks as have already been ascertained to be in sound condition and other such banks as rapidly as possible; and authority to reorganize and reopen such banks as may be found to require reorganization to put them on a sound basis.
“I ask amendments to the Federal Reserve Act to provide for such additional currency, adequately secured, as it may become necessary to issue to meet all demands for currency and at the same time to achieve this end without increasing the unsecured indebtedness of the Government of the United States.
I cannot too strongly urge upon the Congress the clear necessity for immediate action. A continuation of the strangulation of banking facilities is unthinkable. The passage of the proposed legislation will end this condition, and I trust within a short space of time will result in a resumption of business activities.
“In addition, it is my belief that this legislation will not only lift immediately all unwarranted doubts and suspicions in regards to banks which are 100 per cent sound but will also mark the beginning of a new relationship between the banks and the people of this country.
“The members of the new Congress will realize, I am confident, the grave responsibility which lies upon me and upon them.
“In the short space of five days it is impossible for us to formulate completed measures to prevent the recurrence of the evils of the past. This does not and should not, however, justify any delay in accomplishing this first step.
“At an early moment I shall request of the Congress two other measures which I regard as of immediate urgency. With action taken thereon we can proceed to the consideration of a rounded program of national restoration.” …

April 1933: – Die Hoarders! Die!

“By virtue of the authority vested in me by section 5 (b) of the act of October 6, 1917, … , I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of this order:
“SECTION 1. For the purposes of this regulation, the term ‘hoarding’ means the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognized and customary channels of trade. The term ‘person’ means any individual, partnership, association or corporation.
“SEC. 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
” (a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.
” (b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.
“(d) Gold coin and bullion licensed for other proper transactions (not involving hoarding) including gold coin and bullion imported for reexport or held pending action on applications for export licenses.

“SEC. 9. Whoever willfully violates any provisions or of any rule, regulation, or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than 10 years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.
The President’s order of today requiring the turning in of hoarded gold, and at the same time providing that gold shall be available for all proper purposes, is an expected step in the process of regularizing our monetary position and furnishing adequate banking and currency facilities for all customary needs…

April 1933: – Ownership is Evil… Only we – your governmental supermen – know what is proper, and what is not proper…

SEC. 1. Licenses for proper transactions and for purposes not covered in preceding articles.—Any person showing the need for gold coin or gold bullion for a proper transaction not involving hoarding or for gold coin or gold bullion for a purpose specified in the Executive order of April 5, 1933, and not covered by the foregoing articles of these regulations, may make application to the Secretary of the Treasury for a equivalent amount of any form of coin or currency license to purchase, or if such coin or bullion is already in his possession, to retain such coin or bullion, in amounts as may be reasonably necessary for such proper transaction or purpose. Applications shall be filed with any Federal Reserve bank. The application shall be filed in duplicate, executed under oath and verified before an officer duly authorized to administer oaths and shall contain (a) the name and address of the applicant, (b) the amount of gold coin or gold bullion desired to be purchased or retained, (c) the amount and description of the gold coin or bullion on hand, if any, at the date of the application, (d) the proper transaction or purpose to which the gold coin or gold bullion will be devoted and the facts making necessary its purchase or retention, (e) such other facts as will enable the Secretary of the Treasury to determine whether the transaction is proper, and (f) a statement that the applicant will use such gold coin or gold bullion as he may be permitted to purchase or retain only for the transaction or purpose set forth in the application. In the case of an applicant for a license who has delivered in obedience to the Executive order of April 5, 1933, gold coin, gold bullion, or gold certificates, the application, in addition to the above, shall state in detail (1) the amount of gold coin, gold bullion, or gold certificates delivered in obedience to the Executive order of April 5, 1933, (2) the date of such delivery, and (3) the bank at which delivered.
SEC. 2. Disposition of applications.On the receipt of any such application, the Federal Reserve bank shall make such investigation of the case as it may deem advisable and shall transmit to the Secretary of the Treasury the original of such application, together with (a) any supplemental information it may deem appropriate and (b) a recommendation whether a license should be granted or denied. The Federal Reserve bank shall retain a copy of the application for its records.
SEC. 3. Granting or denial of the license.—Upon receipt of the original application and the recommendation of the Federal Reserve bank transmitting it, the Secretary of the Treasury will grant or deny the license. A license will be granted on application for the retention or acquisition of gold coin or bullion made by any person showing the need for such gold coin or bullion in accordance with the provisions of section 8 of the Executive order of April 5, 1933, in cases where such person has gold coin, gold bullion, or gold certificates in his possession, or in obedience to said Executive order, has delivered such coin, bullion, or certificates. A license so granted shall be for an amount of gold coin or bullion not exceeding the amount of such coin, bullion, or certificates held or delivered. When the issuance of a license is approved by the Secretary of the Treasury, the Federal Reserve bank through which application was made will issue a license to the applicant. If denied, the Federal Reserve bank will be so advised and shall immediately notify the applicant. The decision of the Secretary of the Treasury shall be final

May to December 1933: – We’re saved! All praise the almighty contradiction!

Return of currency to the Federal Reserve banks continued during June, notwithstanding the fact that an increased volume of industrial and trade activity was reflected in larger demands for cash for payroll purposes and for retail trade. The movement indicates that the return of cash previously held in hoards has been in larger volume than the increase in currency requirements arising from the revival of business activity. Funds arising from the return of currency and from the purchase of $85,000,000 of United States Government securities by the Reserve banks were used by member banks in retiring $110,000,000 of discounts and $10,000,000 of maturing acceptances at the Reserve banks, and in increasing their reserve balances by $120,000,000.
Excess reserves of the member banks at the end of June were about $500,000,000, the increase of about $150,000,000 for the month reflecting in part the increase in reserve balances held and in part a reduction in required reserves resulting from a decline in net demand deposits. The decline in these deposits occurred after the middle of June following the prohibition laid down by the Banking Act of 1933, which became effective June 16, on the payment of interest by member banks on deposits payable on demand. Funds previously held by depositors in this form were shifted in part into time deposits, on which interest is paid, and in the case of deposits of country banks with their city correspondents were transferred in part into balances with Federal Reserve banks…

February 1934: – The Gold Reserve Act, Monetary Debasement Par Excellence…

MY DEAR GOVERNOR: Several days ago I approved the Gold Reserve Act of 1934. The law itself in no way impairs the strength of the Federal Reserve banks. They have simply exchanged their gold for gold certificates issued by the Treasury and collateralled by one hundred percent of gold. These gold certificates so collateralled with gold supply all reserve requirements of the Reserve Act. This bill interferes in no way with the credit, currency, or supervisory responsibilities of the Reserve banks. Their powers will continue to be exercised in the interest of agriculture, commerce, and industry, just as they have been for the past twenty years.
It gives me pleasure at this time to express my appreciation of the splendid services that the Federal Reserve System has rendered in connection with our efforts to bring about recovery. It has been an institution of incalculable value throughout the twenty years of its existence; soon after its organization it was an important factor in enabling this country to aid in winning the war; and more recently it has given firm support to the Government’s efforts in fighting the depression.
It has stood loyally by the interests of the people by supplying them with a sound currency, by placing at the disposal of member banks a large volume of reserves available to finance recovery, by exerting a powerful influence toward the rehabilitation of the commercial banking structure, and by cooperating in every way with the Government’s financial program.
Very sincerely yours, FRANKLIN D. ROOSEVELT.
Governor Federal Reserve Board, Wash- ington, D.C.
To the Congress:
In conformity with the progress we are making in restoring a fairer price level and with our purpose of arriving eventually at a less variable purchasing power for the dollar, I ask the Congress for certain additional legislation to improve our financial and monetary system. By making clear that we are establishing permanent metallic reserves in the possession and ownership of the Federal Government, we can organize a currency system which will be both sound and adequate.
The issuance and control of the medium of exchange which we call “money” is a high prerogative of government. It has been such for many centuries. Because they were scarce, because they could readily be subdivided and transported, gold and silver have been used either for money or as a basis for forms of money which in themselves had only nominal instrinsic value.
In pure theory, of course, a government could issue mere tokens to serve as money— tokens which would be accepted at their face value if it were certain that the amount of these tokens were permanently limited and confined to the total amount necessary for the daily cash needs of the community. Because this assurance could not always or sufficiently be given, governments have found that reserves or bases of gold and silver behind their paper or token currency added stability to their financial systems.
There is still much confusion of thought which prevents a world-wide agreement creating a uniform monetary policy. Many advocate gold as the sole basis of currency; others advocate silver; still others advocate both gold and silver whether as separate bases, or on a basis with a fixed ratio, or on a fused basis.
We hope that, despite present world confusion, events are leading to some future form of general agreement. The recent London agreement in regard to silver was a step, though only a step, in this direction.
At this time we can usefully take a further step, which we hope will contribute to an ultimate world-wide solution.
Certain lessons seem clear. For example, the free circulation of gold coins is unnecessary, leads to hoarding, and tends to a possible weakening of national financial structures in times of emergency. The practice of transferring gold from one individual to another or from the Government to an individual within a nation is not only unnecessary but is in every way undesirable. The transfer of gold in bulk is essential only for the payment of international trade balances.
Therefore it is a prudent step to vest in the government of a nation the title to and possession of all monetary gold within its boundaries and to keep that gold in the form of bullion rather than in coin.
Because the safe-keeping of this monetary basis rests with the Government, we have already called in the gold which was in the possession of private individuals or corporations. There remains, however, a very large weight in gold bullion and coins which is still in the possession or control of the Federal Keserve
Although under existing law there is authority by Executive act, to take title to the gold in the possession or control of the Reserve banks, this is a step of such importance that I prefer to ask the Congress by specific enactment to vest in the United States Government title to all supplies of American-owned monetary gold, with provision for the payment therefor in gold certificates. These gold certificates will be, as now, secured at all times dollar for dollar by gold in the Treasury—gold for each dollar of such weight and fineness as may be established from time to time.
Such legislation places the right, title, and ownership to our gold reserves in the Government itself; it makes clear the Government’s ownership of any added dollar value of the country’s stock of gold which would result from any decrease of the gold content of the dollar which may be made in the public interest. It would also, of course, with equal justice, cast upon the Government the loss of such dollar value if the public interest in the future should require an increase in the amount of gold designated as a dollar.
The title to all gold being in the Government, the total stock will serve as a permanent and fixed metallic reserve which will change in amount only so far as necessary for the settlement of international balances or as may be required by a future agreement among the nations of the world for a redistribution of the world stock of monetary gold.
With the establishment of this permanent policy, placing all monetary gold in the ownership of the Government as a bullion base for its currency, the time has come for a more certain determination of the gold value of the American dollar. Because of world uncertainties, I do not believe it desirable in the public interest that an exact value be now fixed. The President is authorized by present legislation to fix the lower limit of permissible revaluation at 50 percent. Careful study leads me to believe that any revaluation at more than 60 percent of the present statutory value would not be in the public interest. I, therefore, recommend to the Congress that it fix the upper limit of permissible revaluation at 60 percent.
That we may be further prepared to bring some greater degree of stability to foreign exchange rates in the interests of our people, there should be added to the present power of the Secretary of the Treasury to buy and sell gold at home and abroad, express power to deal in foreign exchange as such. As a part of this power, I suggest that, out of the profits of any devaluation, there should be set up a fund of $2,000,000,000 for such purchases and sales of gold, foreign exchange, and Government securities as the regulation of the currency, the maintenance of the credit of the Government, and the general welfare of the United States may require.
Certain amendments of existing legislation relating to the purchase and sale of gold and to other monetary matters would add to the convenience of handling current problems in this field. The Secretary of the Treasury is prepared to submit information concerning such changes to the appropriate committees of the Congress.
The foregoing recommendations relate chiefly to gold. The other principal precious metal— silver—has also been used from time immemorial as a metallic base for currencies as well as for actual currency itself. It is used as such by probably half the population of the world. It constitutes a very important part of our own monetary structure. It is such a crucial factor in much of the world’s international trade that it cannot be neglected.
On December 21, 1933, I issued a proclamation providing for the coinage of our newly mined silver and for increasing our reserves of silver bullion, thereby putting us among the first nations to carry out the silver agreement entered into by 66 governments at the London Conference. This agreement is distinctly a step in the right direction and we are proceeding to perform our part of it.
All of the 66 nations agreed to refrain from melting or debasing their silver coins, to replace paper currency of small denominations with silver coins, and to refrain from legislation that would depreciate the value of silver in the world markets. Those nations producing large quantities of silver agreed to take specified amounts from their domestic production and those holding and using large quantities agreed to restrict the amount they would sell during the 4 years covered by the agreement.
If all these undertakings are carried out by the governments concerned, there will be a marked increase in the use and value of silver.
Governments can well, as they have in the past, employ silver as a basis for currency, and I look for a greatly increased use. I am, however, withholding any recommendation to the Congress looking to further extension of the monetary use of silver because I believe that we should gain more knowledge of the results of the London agreement and of our other monetary measures.
Permit me once more to stress two principles. Our national currency must be maintained as a sound currency which, insofar as possible, will have a fairly constant standard of purchasing power and be adequate for the purposes of daily use and the establishment of credit.
I am confident that the Nation will well realize the definite purpose of the Government to maintain the credit of that Government and, at the same time, to provide a sound medium of exchange which will serve the needs of our people.
January 15, 1934.

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Politicians, Banksters, Psychopats and Serial Killers-LA Times

How many times have we heard, people in Finance and Politics are psychopaths? Well now it is official, high profile Jobs attract people with the same psychology as serial killers, according to the new study by Kouri. 
The trader has met quite a few of these persons during the years. LA Times reports,

Using his law enforcement experience and data drawn from the FBI’s behavioral analysis unit, Jim Kouri has collected a series of personality traits common to a couple of professions.

Kouri, who’s a vice president of the National Assn. of Chiefs of Police, has assembled traits such as superficial charm, an exaggerated sense of self-worth, glibness, lying, lack of remorse and manipulation of others.

These traits, Kouri points out in his analysis, are common to psychopathic serial killers.

But — and here’s the part that may spark some controversy and defensive discussion — these traits are also common to American politicians. (Maybe you already suspected.)

Yup. Violent homicide aside, our elected officials often show many of the exact same character traits as criminal nut-jobs, who run from police but not for office.

Kouri notes that these criminals are psychologically capable of committing their dirty deeds free of any concern for social, moral or legal consequences and with absolutely no remorse.

“This allows them to do what they want, whenever they want,” he wrote. “Ironically, these same traits exist in men and women who are drawn to high-profile and powerful positions in society including political officeholders.”

Good grief! And we not only voted for these people, we’re paying their salaries and entrusting them to spend our national treasure in wise ways.

We don’t know Kouri that well. He may be trying to manipulate all of us with his glib provocative pronouncements. On the other hand …

He adds:

“While many political leaders will deny the assessment regarding their similarities with serial killers and other career criminals, it is part of a psychopathic profile that may be used in assessing the behaviors of many officials and lawmakers at all levels of government.

Don’t Ignore Inflation … Embrace It!

by Kevin Kerr

For several years now I, and other traders I respect, have been warning of a day of reckoning that would eventually come to pass for the global economy.

We pointed feverishly to a time in the future when hyperinflation would destroy the very fabric of the planet’s financial system.

We warned that the reckless printing of fiat currency, enormous sovereign debt, overpriced real estate markets, and banks gone wild were a disaster in the making.

We stated over and over again that it was only a matter of time before the economic devastation, widespread unemployment, downgraded ratings, foreclosure madness, and political upheaval, would rule the day.

Some of us even said municipalities and entire countries would eventually have to default on their debt.

We repeatedly pointed to the year-after-year increase in gold prices, as well as most other commodities, that are a clear indicator of forthcoming hyperinflation.

Sadly, our warnings almost always fell on deaf ears. And now, it’s become plain as day that …

We Haven’t Seen Anything Yet!

Inflation has been creeping in on us as energy and food prices have climbed dramatically in the last seven years. Meanwhile precious metals like gold and silver have exploded in value, and still have much further to go in my opinion.

The U.S. dollar and the euro are simply in a race to the bottom. Who gets there first is anyone’s guess. And it’s not even clear if the currencies will survive in their current form.

The violent unrest in 2011, has mainly been in the Middle East, and has primarily been driven by surging food and energy costs.

Governments across the region, for instance in Saudi Arabia, are rapidly responding to the rise in commodity prices with hikes in fuel and food subsidies, civil service wage and pension increases, additional cash transfers, tax reductions, and other spending increases. These measures are an attempt to help poor households maintain their purchasing power.

In other areas, such as in Libya, the leadership has taken military action and used violence to try and quell the protestors. It’s a veritable powder keg.

The EU Isn’t Immune Either …

As default continually looms for countries — such as Greece, Portugal, Ireland, and potentially Spain — that got in way over their heads, the very survival of the European Union is at stake.

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Amid protests, German and French leaders continually ask citizens to prop up their free-spending neighbors.

The Germans and the French are getting tired of repeatedly picking up the tab for these nations who spent like drunken sailors and now can’t pay the bill.

Meanwhile there are smaller euro-zone members, like here in Estonia where I live, who acted responsibly and took huge cuts in order to qualify for the “privilege” to use the euro. Now they feel as though they were invited to a wedding, and it turned out to be a funeral.

Since taking on the euro, inflation has surged, up as much as 20 percent in some cases.

Meanwhile in the U.S. the pain is also becoming very evident …

Printing While Washington Burns

Ben Bernanke has been busy wildly printing more fiat currency, and the dollar has continued to plunge, both in real value as well as perceived value. Things that may have seemed unfathomable five years ago are now probable …

For example, the U.S. dollar could very likely lose its reserve currency status on the global market. In addition, OPEC may decide it simply can no longer afford to price oil in U.S. dollars, and pull the plug. They will likely opt to price oil in a gold-backed dinar to avoid all the currency risk. China may also decide to further diversify out of U.S. dollars.

American consumers are absolutely devastated by a falling U.S. dollar, rising commodity prices, and some of the worst unemployment since FDR was in the White House.

Unfortunately there will be no soft landing for the U.S. That’s because the debt hole that has been dug all of these years is simply too big! And as the debt ceiling debacle continues, it only serves to fan the flames of an already blazing fire.

But rather than try to get some water and put it out, the government is likely just to throw more paper dollars on top of it, until eventually even that won’t work.

Meanwhile the Chinese, our co-dependent partner in this dysfunctional economic relationship, are having troubles of their own.

And try as they might to control inflation and sky-high real estate prices …

The Fortune Cookie Is Crumbling

China’s inflation has accelerated to the fastest pace in three years! The inflation rate touched 6.4 percent in June, according to the country’s National Bureau of Statistics. Some economists have reported that China’s inflation was likely to peak at 7.8 percent later this year. Meanwhile China’s central bank has already raised interest rates three times this year, most recently just a week or so ago.

According to a June 6 Forbes article, investors are worrying about the wrong problem …

“Rising inflation in China has investors running scared, fearing that Chinese central bank tightening will end global growth. They are worrying about the wrong problem. China’s inflation problem is transitory and will not interrupt China’s growth. But it is a canary in the coal mine that should warn us of a serious, long-term, inflation problem building up in the U.S.”

I agree.
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Make no mistake; Ben Bernanke’s helicopter can fly a long way.
One of the biggest factors behind China’s inflation is because its currency is, effectively, pegged to the dollar, which is used to price food, oil and commodities. Therefore a falling dollar = soaring prices.

The ongoing weak U.S. dollar policy, and the Fed’s folly that increased bank reserves by 17x since 2008 is the main driver behind global energy and industrial commodity inflation.

On top of that throw in the absurd and misguided U.S. ethanol policy that has diverted 40 percent of U.S. corn production into ethanol, and has more than doubled corn prices in the past year, and you have a recipe for food inflation.

Unlike in the U.S. though, many experts believe that the impact of inflation on China will be short term.

The belief is that increased productivity and excess capacity will return inflation to lower numbers. Unlike in the U.S., growth in China is largely driven by small, private companies that do not get their working capital from banks. That is good news for them, and bad news for the U.S.

So what are we as consumers to do about fiat currencies that are falling almost daily, and commodity prices that are rising even faster?

Don’t Ignore It …
Embrace It

The simple truth is we have to accept the fact that inflation is here to stay and likely going to get a lot worse before it gets better.

Sure some things will fall in price, that’s inevitable. But the primary staple commodities like energy and food will increase exponentially. In addition, as more and more consumers feel the pinch, they will look for ways to avoid using dollars, such as switching to gold and hard assets, as well as bartering and using any form of trade they can to avoid the paper currency.

To best avoid the negative effects of inflation consider investing in durable goods or commodities rather than in paper money. I am a long-term commodities bull. And while there will always be opportunities on the short side of commodities from time to time, the long-term trend is much, much higher.

Buying actual physical commodities can be too daunting for most investors; after all how many of us can really store 42,000 gallons of heating oil, or 50,000 pounds of cotton. And futures and options on futures can present opportunities but also carry unlimited risk.

However, commodity exchange traded funds (ETFs) offer a way for the average investor to take advantage of the inflation in commodities. A few of my favorite ETFs include: The PowerShares DB Agriculture DBA, the Van Eck Market Vectors Global Agribusiness MOO, and iPath DJ AIG Agriculture JJA.

Yours for resource profits,

Dropping Expectations Point to Rocky Earnings Season

By David Zeiler

With more companies issuing warnings about their results in recent weeks, investors may see more than a few disappointments in the second-quarter earnings season.

Companies faced many sources of pressure on their bottom lines over the last quarter, including persistent unemployment, the disruption of the global supply chain from the Japanese earthquake and tsunami, and high commodity and energy costs.

"This is where we can get down to the fundamentals of this market and finally see how companies are actually doing in this economy," Jack Ablin, chief investment officer at Harris Private Bank, told CNN Money.

Once-lofty expectations for the second quarter have been slipping for weeks. The Standard & Poor's 500 share-weighted earnings estimate has dropped four weeks in a row, from $232.5 billion on June 9 to $222.9 billion last week.

Of greater concern is that 84 companies - 17% of the S&P 500 - have given negative preannouncements, while just 33 have given positive preannouncements, according to Thomson Reuters data.

The resulting ratio - 2.6 - is more than twice that of the 1.2 ratio of last year's second quarter and a big jump from the 1.8 ratio of the first quarter.

The race to lower expectations has come primarily from the financial and consumer discretionary sectors.

In fact, Thomson Reuters expects financial sector profits in this earnings season to decline 26.4%, with modest declines expected in the utilities and telecommunications sectors.

Sectors predicted to do well include energy companies - which are expected see profits grow 31% -- and materials industries such as aluminum and steel producers - which are expected to enjoy a 46% spurt in earnings.

And sure enough, aluminum giant Alcoa Inc. (NYSE: AA), the first member of the Dow Jones Industrial Average to report, said it doubled revenue and profits in the second quarter.

Alcoa Kicks Off Earnings Season

But in an apparent glimpse of what to expect from this earnings season, Alcoa met expectations that had already been lowered twice.

Alcoa earned 32 cents a share, in line with expectations that were lowered from 35 cents a share in June and from 36 cents in May. Net income was 28 cents a share, more than double last year's 13 cents.

Alcoa's revenue rose from $136 million a year ago to $322 million. Higher prices for aluminum helped Alcoa overcome increasing costs for raw materials and energy.

Looking ahead, the company predicted aluminum demand would grow 12% this year and double by the end of the decade.

Alcoa expects demand from China's booming auto industry to slow in the short term due to lingering disruption from the Japanese disasters in March, but that Asian demand in general will accelerate in the years ahead as countries there build more office buildings, aircraft, autos and trains.

Reflecting on the anemic housing markets in both the United States and Europe, Alcoa Chief Executive Klaus Kleinfeld said construction is "pretty much dead" with no improvement in sight.

On the other hand, Alcoa enjoyed double-digit increases in packaging, auto, aerospace and automotive sales.

Kleinfeld described the U.S. economic recovery as "uneven."

Indeed, analysts are puzzling over just how much of an impact the wavering recovery will have on earnings this quarter as well as for the rest of the year. Some analysts expect companies to continue lowering guidance as 2011 progresses.

The long-fruitful strategy of sustaining profits by continuing to trim costs and increase efficiency may finally have run its course.

"Cutting costs has been the name of the game for corporations, but the reason why there might be some caution going into this earnings season is there's a sense that companies have cut all that they can cut," James Paulsen of Wells Capital Management told The Business Times.

Does the Eurozone Have Its Own Lehman Bros?

By Keith Fitz-Gerald

Does the Eurozone have its own American International Group Inc. (NYSE: AIG), or worse, its own Lehman Bros. when it comes to Greece?

I believe it does.

Why else would the European Union have bent over backwards to "save" a member nation that: A) Accounts for 2.01% of the EU by trade volume; and B) Would essentially be like letting Montana go out of business - no offense to Montanans or Montana!

More to the point, if things really were under control, why would European Central Bank President Jean-Claude Trichet say that risk signals for financial stability in the euro area are flashing "red" as he did following a meeting of the European Systemic Risk Board in Frankfurt?

The short answer: Because he knows what the European banks are desperately trying to hide from the rest of the world - that there are still enormous risks and they're even more concentrated now than they were in 2008 at the start of the financial crisis.

In all, more than 50 European banks have a combined 92 billion euros ($129 billion) tied up in Greek sovereign debt. Worse, there are 14 banks whose Greek exposure is more than 10%, which suggests that they may not have reserves strong enough to handle a debt default.

Admittedly, 10% doesn't sound like an especially large number - but if bad debt starts a run on a bank's deposits, 10% can very quickly grow to 20%, 30%, or more as increasingly fearful depositors scramble to pull out their money.

The other thing to bear in mind is that the 10% figure may not completely account for bad mortgage debt, credit default swaps, currency arbitrage or other "exotic" financial instruments (and we have no way of knowing because these instruments are almost completely unregulated).

When countries are ranked by total exposure to the euro, the concentration becomes even more apparent - as do the reasons for the intense negotiations being undertaken by the Germans and the French. The former has everything to lose while the latter, with its dysfunctional economy, has everything to gain.

Incidentally, when ranked by the number of banks at risk, the reasons why I repeatedly warned that credit-default-swap raiders are going to go after Spain, Italy, and France when they're done with Greece, Ireland, and Portugal becomes abundantly clear: The concentration of risk is a target-rich environment for major trading houses that have grown so powerful they can attack entire countries, much the way the bond vigilantes attacked debt in the 1990s as a means of raising rates.

What's ironic is that the very bailout policies everybody thinks are helping are, in fact, providing the incentive to attack because the traders know they can't lose if they apply enough leverage.

What the ECB President Knows that You Don't

Now let's chat for a minute about what else I think Trichet has figured out - namely that the risks to U.S. financial institutions are significant and that these same risks may actually outweigh the costs of the last global bailout should Greece fail.

I believe that Trichet has very quietly communicated this information to U.S. Federal Reserve Chairman Ben S. Bernanke, who looks and sounds defeated and who appears to be telegraphing one or more black swans on the horizon - even as he publicly downplays the possibility.

At the same time, regulators who have probably not been explicitly told what's at stake are wising up, which is why they've been "probing" U.S. financial institutions with regard to direct and indirect Greek exposure - especially when it comes to details on the credit default swaps they may have written on Greece, Greek debt, and European banks.


There are two particular areas of concern as I see them: The Fed's dollar swap lines and money market funds.

Dollar swap lines are specific credit lines extended by the Fed as a means of ensuring that stressed foreign banks have easy, quick access to short-term U.S. dollar-denominated funds when they need to take "risk off" or as part of the well-documented "flight to safety."

First, I want to know what the Fed's dollar swap lines are with European central banks, and which U.S. banks have engaged in similar arrangements and are using their swaps to daisy chain the capital into other "investments" that directly or indirectly involve Greek exposure.

And secondly, I want to know which banks have money market exposure to Greek debt. Not many investors realize this, but money market funds have long invested in foreign debt instruments as a means of maintaining their value and their stability. This is not an inconsequential matter, either.

According to a report from Fitch Ratings Inc., the 10 largest U.S. prime money market funds represent more than $755 billion of assets - over half of which are directly exposed to European banks and presumably to the Greek debt crisis. That's another $377.5 billion in exposure our system may not be able to handle.

Throw in private liquidity pools, the rest of the U.S. money market universe, and European money market funds denominated in dollars, and you could easily hit another $2 trillion to $5 trillion in risks that are not yet factored into the financial system -- probably more.

But you know what?

As problematic as that sounds, I am actually more worried about something we've heard with increasing frequency over the past few weeks - that the Fed and Wall Street are both optimistic that they understand the risks involved.

Anybody besides me want to call BS?

I think we should, because the mere fact that they think they "understand" the risks involved practically guarantees that they don't. And really, we have the right to know if there's another Lehman Bros. lurking somewhere in the Eurozone.

Moody's cuts Ireland to junk, warns of second bailout

By Walter Brandimarte and Carmel Crimmins

(Reuters) - Moody's cut Ireland's credit rating to junk on Tuesday, warning that the debt-laden country would likely need a second bailout -- just the latest move amid heightening concerns about Europe's ability to address its debt crisis and prevent it from spreading.

Moody's move comes a week after it slashed Portugal to junk status with a similar warning about the need for a second round of rescue funds. It reflects the credit rating agency's view that any further financial assistance from Brussels will require private investors to share part of the pain, possibly through a debt rollover or swap.

European finance ministers have acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts, and if that materializes, Ireland's rating, never before in junk territory, could be set for a further round of cuts.

Investors fear a Greece default could ripple through Europe's banking system, putting pressure on stretched public finances in other euro zone countries. Italy, the euro zone's third largest economy, looks especially vulnerable with a debt-to-output ratio second only to Greece, and markets fear political bickering may derail a plan to slash spending and rein in the deficit.

Moody's one-notch downgrade on Ireland weighed on stocks and the euro, which hit its lowest level against the dollar in four months.

The Irish government, which wants to return to debt markets in 2013 when its current EU-IMF bailout runs out, offered a vexed response.

"This is a disappointing development and it is completely at odds with the recent views of other rating agencies," the finance ministry said in a statement. "We are doing all that we can to put our house in order and the progress that we are making is there for all to see."

Moody's now rates Ireland Ba1, one notch below former financial market pariah Colombia and two notches below Brazil, and has kept a negative outlook, meaning further downgrades are likely in the next 12 to 18 months.

Ireland's rating is still one notch above Portugal and six above Greece. Both Standard & Poor's and Fitch Ratings have Ireland at BBB-plus, three notches above junk status, with S&P's outlook stable and Fitch on outlook negative meaning it does not expect a downgrade in the short-term.

Moody's move, however, will likely put pressure on the other ratings as the downgrade forces some investors to dump Irish bonds because they no longer enjoy a clean investment-grade sweep of the three major ratings agencies.

"It's amazing to me that Ireland was still investment grade," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York.

"A lot of people assume that these rating agencies tend to move with a lag so there could be more downgrades to come.

Ireland's borrowing costs are already at levels once thought unimaginable, with five-year paper yielding over 15 percent on the secondary market and 10-year paper close to euro-era highs of 13.86 percent.

When Ireland agreed an 85 billion euros ($119 billion) bailout package with the European Union and the International Monetary Fund last November -- a move designed to soothe market fears -- its 10-year paper was yielding around 9.5 percent, a level viewed as shocking at the time.

Economic growth in the European region as a whole has been sluggish, as a number of nations have struggled with mounting debt costs and have had to pass harsh austerity plans that have slowed economic growth further, creating a vicious cycle where tax revenues drop, reducing their chances of repaying the debt even more.

But the more investors fear that heavily indebted euro zone governments will be unable to repay their debts, the more the yields on their bonds rise, dragging down their value in banks' balance sheets, erasing their capital, and increasing the need for yet more bank bailout's by stronger euro zone governments.


Unlike Greece, Ireland is meeting its bailout targets and Irish officials have felt frustrated at how their efforts have been swept aside by events in Athens.

An agreement by the euro zone finance ministers, known as the Eurogroup, late on Monday to cut the interest rate for countries borrowing from their rescue fund and an agreement to make the fund more flexible and extend its loan maturities was hailed by Dublin as helping it return to debt markets.

The finance ministry said Moody's move appeared not to reflect the Eurogroup developments, but Moody's analyst Dietmar Hornung said the risk of private sector participation in any future bailout meant investors would be put off lending fresh funds to Ireland.

Hornung, in an interview with Reuters, warned over the risks even though Moody's is confident the euro zone is "willing to continue to provide liquidity support for peripheral countries and give them time to achieve a sustainable financial position.

"But at the same time we see a growing possibility that, as a precondition of additional rounds of liquidity support here, private-sector creditors participation will be required," he said.

Ireland's debt management agency said on Tuesday the country was fully funded until the end of 2013. Ireland has a financing requirement of nearly 34 billion euros over 2014 and 2015, based on estimated deficits and maturing debts.

Even before Moody's downgrade, Finance Minister Michael Noonan admitted Dublin was at the mercy of the markets.

"Ireland is a cork bobbing on a very turbulent ocean at present," he told state broadcaster RTE on Tuesday.
Officials from the EU, the IMF and the European Central Bank are expected to confirm Dublin is meeting all its bailout targets in their latest quarterly review, expected on Thursday.

But Ireland's weak domestic economy is hitting spending-related tax revenues, and Moody's warned that another downgrade would be considered if the government can't meet its fiscal consolidation goals.

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