News Article for August 5th, 2011

GDP/Debt ratio 11th worst in World

The TGB Report | Thomas G. Brown

The Bureau of Economic Analyst has revised the Gross Domestic Product Number to $14.53 trillion dollars. Now with the debt ceiling raised after the shame that where the debates the total Federal Debt as of 5:00 pm August 4 stands at $14.57 trillion dollars. This means that government debt obligations swallow 99.7% of the GDP. To put this in perspective with other countries let’s look at some numbers according to the IMF.

Japan 225.9%
St. Kitts and Nevis 196.3%
Lebanon 139.0%
Jamaica 135.7%
Greece 130.2%
Eritrea 129.7%
Grenada 119.1%
Italy 118.4%
Iceland 115.6%
Barbados 111.6%

So the President and those who have voted in favor of this increase in debt should be ashamed of themselves. The have now put us one step closer to financial ruins as a nation. In addition to kicking the can down the road to start the reduction of our debt through real cuts they have set us up for dictatorship.

Congressman Ron Paul 2 days ago stated “Perhaps the most disturbing aspect of this deal is the “Super Congress” provision. This is nothing more than a way to disenfranchise the majority of Congress by denying them the chance for meaningful participation in the crucial areas of entitlement and tax reform. It cedes power to draft legislation to a special commission, hand-picked by the House and Senate leadership. The legislation produced by this commission will be fast-tracked, and Members will not have the opportunity to offer amendments. Approval of the recommendations of the “Super Congress” is tied to yet another debt ceiling increase. This guarantees that Members will face tremendous pressure to vote for whatever comes out of this commission– even if it includes tax increases. This provision is an excellent way to keep spending decisions out of the reach of members who are not on board with the leadership’s agenda.”

This committee eviscerates Article I section 7 which states the following: All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

Why Gold and Silver Prices Will More than Double Again Even From Current Prices

The Underground |

Those that are familiar with my writings about gold and silver for the last six years know that I have said gold was cheap at $500, $600, $700, $800, $1000 and $1,200 a troy ounce and know that I have said silver was cheap at $11, $12, $14, $16, $25, and $30 a troy ounce. Today, I will reiterate that gold is still cheap in the $1500 to $1600 range and that silver is still cheap in the $40 range because the largest movements in gold and silver prices as well as gold and silver mining stocks have still not happened and will materialize over the next four to five years. Again, this doesn’t mean that gold and silver can’t or won’t correct or consolidate again in the future because both PMs always do. I have written publicly so much about this topic over the years (and even in much greater depth to my subscribing members) because I truly believe it is insanity not to participate in one of the best ways to invest in gold and silver today – the ownership of physical gold and physical silver.

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High-Speed Train Wreck

City Journal | Cynthia Ward

In October 2008, Joseph Vranich, a preeminent authority on high-speed rail in the United States, testified before a hearing of California’s State Senate Transportation and Housing Committee. Vranich, the best-selling author of Supertrains and a 40-year advocate of high-speed rail, had come to offer his thoughts on the state’s plan to build a high-speed rail line from Orange County to San Francisco. “This is the first time I am unable to endorse a high-speed rail plan,” he told the senators, saying that he found the California High Speed Rail Authority’s work to be “the poorest I have ever seen.”

It’s fair to say that the vast majority of California voters never heard what Vranich had to say. Instead, they relied on faulty and unverified information on their ballot statements, where high-speed rail proponents touted the environmental advantages and fiscal benefits of the state’s plan. Less than a month after his testimony, voters approved Proposition 1A, authorizing Sacramento to sell a few billion dollars in bonds for a project most experts, now including the state’s nonpartisan Legislative Analyst Office and the University of California, say will cost tens of billions of dollars more than the official $43 billion estimate.

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Gold: the clearest sign yet

Sovereign Man | Simon Black

Here’s some food for thought that I’d like you to chew on for a bit.

The debt ceiling debacle has been settled… President Obama is celebrating his 50th birthday, no doubt dancing a little jig that a major crisis has been averted, and equity markets in the US have begun to move off multi-month lows.

Investors can safely say that the US will not default, and the rating agencies have even maintained America’s AAA credit rating, albeit with a warning that the US may be downgraded within the next two years. Yields on the Treasury’s benchmark 10-year note have fallen from 3% last week, to just 2.6% yesterday, and the Dollar Index is off its lows from earlier this week.

Here’s the question: with all of this good news and calm in the world of the dollar, why does the price of gold keep going up, 5 out of the last 8 sessions?

This may be the strongest indication yet that a major shift is taking place in the global financial system. I first started talking about this in December 2009 when I wrote:

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The 2011 Gold Season is Just Around the Corner

US Global Investors | Frank Holmes

The ongoing debate in Washington prompted increased Fear Trade activity in gold this week. The issue over raising the federal borrowing limit caused the yellow metal to remain around its all-time high of $1,600 per ounce this week.

Gold has now increased for 124 months straight, says Deutsche Bank. The rally is in its 11th year, lasting nearly three times as long as other historical rallies going back to 1971. If the metal rose to $2,100 an ounce, it would represent the most powerful percentage increase in history, according to Deutsche Bank.

I believe what’s happening in the market today is a short-term driver of gold prices spurred by ETF investments. While Deutsche Bank believes a “market friendly resolution to the U.S. debt ceiling may trigger a short-term correction in the gold price,” fundamentals seem to be in place to keep gold prices elevated over the long run. Even in many economic scenarios today, Deutsche Bank believes gold prices “appear irreversible.”

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A Good Debtor

The Daily Reckoning | Bill Bonner

08/04/11 Poitou, France – We’re spending the month of August out in the country. This is the house where most of the children grew up – a huge, stone, shambling place, built in the 16th or 17th century and rebuilt at the end of the 19th. The floors are like roller coasters. The ceilings sway like an old mare’s back. The plumbing snorts and gurgles.

What fun to be back! More below…

Meanwhile, in the world of money, life goes on. It has its ups and downs, too, just like our hallway. And we are now in one of its down phases. Stocks have fallen for 8 of the last 9 sessions…with a small rise in the Dow yesterday to break the trend.

This long stretch of losses should give rise to a bounce back in the short-run. But a long stretch of losses is still what the stock market needs. Somehow, it has to get from where it is down to where it should be. Stocks should be cheaper. Markets go up and down. It started down more than 10 years ago. But it has never completed its rendezvous with the bottom. The bottom for this bear market – the one that began in January 2000 – is probably down around 5,000 on the Dow. So, we have a long way to go…and probably a long time to get there.

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Why a Debt Default Would Be Wonderful |

While it is likely that the two parties in Congress will reach a deal before the August 2 deadline, I can’t help reflecting on how wonderful it would be if they didn’t. While Congressman Ron Paul has correctly pointed out that the government has already defaulted at least three different times in its history, and continues to default every time it prints new money, it is not quite the same as an “on-the-books” failure to make a timely payment. That is exactly what America needs.

Politicians, mainstream economists, and the media tell us that a U.S. government debt default would be catastrophic. Treasury bonds would be downgraded, interest rates would soar, and the massive government spending that has supposedly fueled the present (jobless) recovery would be severely curtailed, plunging the U.S. and possibly the world back into a deep recession.

Perhaps that is true. However, a debt default by the federal government would still be a blessing to American society for several reasons.

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The Real
Banking Crisis

Market At a Glance | Eric Sprott & David Baker

Although the adjacent questionnaire is facetious, it does ask the right
questions. If you’re a wealthy European depositor today, what do you
do with your money? Do you really continue to keep cash in a Greek or
Italian bank account?
European bank depositors all face a tough decision today – to withdraw
their deposits, or not withdraw and take their chances. Their response
to that decision may determine the financial future of the Eurozone.
Since 2008, EU Government bailouts have transformed a traditional
banking crisis into a full-blown sovereign crisis. The European Central
Bank (ECB) has managed to keep the Eurozone banking system
going for now, but the constant threat of depositor bank runs makes
its future extremely uncertain. A bank run on deposits forces banks
to liquidate assets to raise cash. Governments and central banks will
go to extreme lengths to avert such a scenario, because a liquidation
reveals what an asset is really worth – and they are likely worth far
less than what the banks are claiming they’re worth on their balance
sheets today.

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Newsletter August 5th 2011


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