1, 2, 3 your storage of value for the next several decades
1) Maintain your own bank of value, store your long term and retirement savings in useable, exchangeable commodities, ie., government stamped and milled precious metal coins.
2) Don’t hold debt as “wealth” = fiat national paper currency, continued death by inflation.
3) Don’t hold or trust any more paper “money” to your bank than needed for monthly transactions.
A. Whom To Believe On Gold: Central Banks Or Bloomberg?
26 Mar 2013, Gold-Eagle.com, by Jeff Clark
Pasted from: http://www.gold-eagle.com/editorials_12/jclark032613.html
Bloomberg reported recently that Russia is now the world’s biggest gold buyer, its central bank having added 570 tonnes (18.3 million troy ounces) over the past decade. At $1,650/ounce, that’s $30.1 billion worth of gold.
Russia isn’t alone, of course. Central banks as a group have been net buyers for at least two years now. But the 2012 data trickling out shows that the amount of tonnage being added is breaking records.
The following table lists the countries that have added to their gold reserves this year, while the second one tallies those that have been selling. You’ll see how recently each country has reported, along with its percentage increase.
|Changes in Central Bank Gold Reserves in 2012 (Million Troy Ounces)|
|Year-End 2011||YTD 2012||Last Reported||Net Change||Percent Change|
|Countries Increasing Reserves|
|Bank for International Settlements||15.6||16.71||Dec||1.114||7.1%|
|Subtotal Gross Increases||15.2|
|Changes in Central Bank Gold Reserves in 2012 (Million Troy Ounces)|
|Year-End 2011||YTD 2012||Last Reported||Net Change||Percent Change|
|Countries Decreasing Reserves|
|Subtotal Gross Decreases||-0.39|
|Total Net Change||14.8|
|Sources: IMF, CPM Group. Data as of 1-31-13.|
Based on current data, the net increase in central bank gold buying for 2012 was 14.8 million troy ounces – and that’s before the final 2012 figures are in for all countries.
This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than since 1964. The net increase – so far – is 17% greater than what was added in 2011, which was itself a year of record buying.
Here’s a picture of total central bank reserves since the financial crisis hit.
Whatever gold’s price movements, positive or negative, central bank officials have continued adding a lot of ounces to their reserves.
But this understates the case, because most of the data exclude China, as well as a few other small countries. China last officially reported gold reserves in 2009, so the totals in the chart since then exclude whatever its purchases might have been.
Here’s where it gets interesting: Bloomberg claimed that Russia has been a bigger buyer of gold over the past decade than China – by a full 25%. Based on data about gold imports through Hong Kong and the fact that, for the most part, Chinese production doesn’t leave the country, it seemed to me that this could not be right.
The Chinese central bank holds an official 1,054 tonnes of gold in its reserves. Bloomberg states, based on IMF data, that China has added somewhere around 425 tonnes over the past decade.
I can’t say exactly what the correct number is, but the Bloomberg number almost has to be wrong. Here’s why:
- Gold imports through Hong Kong in December alone hit a record high of 109.8 tonnes.
- Imports for 2012 also hit a record high of 572.5 tonnes.
- If you add 2012 mine production – remember that China is now the world’s largest gold producer – roughly 970 tonnes of gold was delivered to various entities within the country last year.
- Cumulative imports since 2001 have reached 1,352 tonnes.
- Since 2001, imports plus production total a whopping 4,793 tonnes.
So Bloomberg is essentially saying that roughly 10% of the total gold available inside the country during that period was added to China’s reserves. While it’s true that Chinese citizens are buying a lot of gold (though perhaps more silver), it’s highly doubtful that private parties bought 90% of all the gold brought to the Chinese market during this period. I think – but can’t prove – that China’s central bank is buying more gold and at a faster pace than its Russian counterpart.
Jim Rickards, a highly respected author and hedge fund manager, said last month that China has probably already accumulated between 2,000 and 3,000 tonnes of additional gold reserves. If he’s right, that would be roughly double or triple the 1,054 tonnes it reported in 2009 – not the 40% increase Bloomberg’s numbers suggest.
At the very least, we can say that the Bloomberg report left consideration of China’s imports and production out of its report naming Russia the top gold buyer of 2012. Okay…but so what?
Well, Jim thinks the next big catalyst for gold will be an announcement from China about its reserve position. Here’s what he told me in late December:
“The catalyst for a spike into the $2,500 to $3,000 price range for gold will be an announcement by China, probably in late 2013 or 2014, that they have acquired 4,000 tonnes or more in their official reserve position. This will put China on an equal footing with the US in terms of a gold-to-GDP ratio, and validate gold as the real foundation of the international monetary system. Once that position is validated, gold will move to the $7,000 range in 2015 and beyond.”
Even if Jim’s estimate is high or China doesn’t make an announcement until later, it’s clear that central banks around the world are buying gold in record quantities.
It almost makes you wonder… do they know something we don’t?
The Russians gave us some hints.
Evgeny Fedorov, a lawmaker for Putin’s United Russia Party, said last week, “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound, or any other reserve currency.”
President Vladimir Putin told his central bank not to “shy away” from the metal, adding “After all, they’re called gold and currency reserves for a reason.”
The Chinese have been quiet on this topic recently, after being very vocal a few years ago. Here’s a recent quote.
“The current international currency system is the product of the past,” said Hu Jintao, General Secretary of the Communist Party of China.
Others have provided clues as well.
“We’re in the midst of an international currency war,” said Guido Mantega, finance minister of Brazil.
“Quantitative easing also works through exchange rates… The Fed could engage in much more aggressive quantitative easing, to further lower the dollar,” said Christina Romer, former chair of the Council of Economic Advisors.
Economist Kyle Bass recently spoke to a senior member of the Obama administration about its planned solutions for fixing the US economy and trade deficit. When he asked, “How are we going to grow exports if we won’t allow nominal wage deflation?”, the answer he got was, “We’re just going to kill the dollar.”
Yes, we’re talking about the US dollar. Perhaps some investors have gotten complacent about the risks to the world’s reserve currency – but not central bankers. It’s not hard to see why: whether they admit it or not, central bankers must know what it means to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It’s no surprise they want to hedge their bets, moving more reserves into something with actual value… something that can’t be debased by a few computer keystrokes by an increasingly unfriendly government.
The US dollar has been the world’s reserve currency since WWII. That’s beginning to change, and the movement into gold is just one facet of that change. The buying by central banks is exactly what one would expect to see as we approach the end of the dollar hegemony.
The message from central banks is clear: they expect the dollar to move inexorably lower. It doesn’t matter that it’s been holding up against other currencies or that the economy might be getting better. They’re buying gold in record amounts because they see a significant shift coming with the status of the dollar, and they need to protect themselves against that risk.
This leads to a second message: gold is not overpriced, in spite of the 500%+ increase since 2001. Indeed, with the recent correction, central banks are likely buying more, even as you read this.
Central bank gold buying will continue, of that we’re certain. Even after Putin’s binge, gold accounts for only 9.5% of Russia’s total reserves. China’s 1,054 tonnes is roughly 2% of its reserves. It’s clear that both countries, along with others, have decided to accumulate as much gold as they can, as quickly as they can, before the dollar’s decline becomes more pronounced… and permanent. This could explain why some central banks don’t publicize their purchases. It also means that Bloomberg and other mainstream media outlets could be caught off guard when China announces higher gold reserves than expected – perhaps much higher.
Clearly we should take notice. If central banks are preparing for a major change in the value of the dollar, shouldn’t we? The fact remains that the US dollar cannot and will not survive the ongoing abuse heaped upon it by government planners and federal officials. That not only means the gold price will rise, but that many, if not most currencies, will lose a significant amount of purchasing power. This has direct implications for all of us.
Embrace the messages central bankers are telling us – the ones they tell with their actions, not their words. Buy gold. Your financial future may very well depend upon it.
B. Guest Post: The US Debt Crisis – How High Will It Go?
01/05/2013, Zerohedge.com, submitted by Tyler Durden
Pasted from: http://www.zerohedge.com/news/2013-01-05/guest-post-us-debt-crisis-how-high-will-it-go
Authored by Chris Ferreira, originally posted at Economic Reason blog,
The implications of the US debt crisis are not well understood in most circles, and it is not widely spoken about in the media and during important political debates. The irony is that the US debt is so significant that it plays a monumental role in finance and modern political strategy. The debt poses great risks moving forward, and yet it is referred to in only the vaguest of terms.
Here is why the US debt must grow every year and why it is mathematically impossible for it to continue forever.
Before we can understand why the debt must grow every year, here is a visual representation, to scale, of how much the current debt is standing at. Each tall uniform column in the background of the picture below refers to a pile of $100 bills stacked one on top of another. Each “tower of debt” consists of 10 x 10 fork-lift palettes that reach out into the sky and are higher than the old World Trade Center buildings. These towers of debt represent $US 16.394 trillion. However, by the time you wake up to read this, it will be larger than that. DemonOcracy does great work on visual representation of the US debt levels.
Why did the US debt grow to these proportions?
Short answer: the US government spends more than what it receives in revenue. In 2012, the US federal government expects to receive $2.5 trillion in revenue, while the total spending carried out by the federal government is $3.8 trillion. The difference ($1.3 trillion) is debt piled onto of the previous debt.
To put $1.3 trillion into context, it is approximately $3.56 billion a day. To make matters worse, the current debt does not take into consideration federal obligations such as social security, Medicare, pension, and retiree health promises. According to David Walker, former controller of the US, when these unfunded programs are added to the enormous debt, it stands at $70 trillion and growing–that is $10 million per minute!
Seventy trillion dollars is over four times the debt in the picture on your left, dwarfing the current US GDP; in fact, it is approximately the world’s annual GDP in 2011.
The government allows for the debt to continue to grow by adding new debt on top of old debt plus compounded interest. Instead of paying back the debt, the government just borrows more to cover previous interest. The interest payments on the debt is over $1 billion a day. When “Uncle Sam” takes out a loan, it is called a bond (I.O.U.). These bonds are purchased by investors, banks, and foreigners. These bonds are a promise to pay capital plus interest. What “Uncle Sam” does, essentially, is pay his investors with his credit card and create new loans to cover interest.
Talk about short-sighted finances with no discipline.
Compounded interest has allowed the debt to grow exponentially, and has reached, in my opinion, unsustainable levels where the debt is reaching at the vertical portion of the “hockey stick” formation.
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
How does the US government allow the US debt to grow?
Doing the “right thing” is usually political suicide for politicians. Cutting expenditure to pay its bills to pay down the debt will make the economy implode. Instead, the government in power continues its daily activities and promotes new social programs to promote reelection. Almost half of the spending done by the US government goes to entitlements (Medicare, Medicaid, social security) [Oops! I have to disagree here. My Social Security check is NOT an “entitlement”. This money was taken from my paycheck for over 40 years, not because I couldn’t save, but by a Federal law that forced my employers to extract the income. They took the money and instead of saving and investing the dollars in profitable pursuits, spent the dollars as fast as they took it in. Social Security has always been broke, there was NEVER an account with we Employees funds saved. Now that MY RETIREMENT SAVINGS have been squandered by those who “knew better” and took the money, the dysfunctional group purporting to “lead” us are weaseling out of paying us back by falsifying inflation rates and berating Social Security benefit recipients as “entitlements” – similar in status to Food stamps, WIC, Obama phones, union bailouts, etc. Mr. Larry] . If any cuts are carried out in this sector, you can expect riots on the street (approximately 28% of the US population are baby boomers and 80% of investments and laws are carried out by this powerful demographic.) Cuts to entitlements are highly unlikely!
The continuous debate on raising the debt ceiling is all about a government mismanaging its money and not being able to control it–much like a child with no discipline. Since debt is being mismanaged, it has caused many distortions in the markets, and yet the debt is allowed to grow because of the US Congress. The debt ceiling has been increased 10 times since 2001. If the debt ceiling were actually a ceiling, the market and debt distortions would have imploded the economy–an implosion necessary for the economy to restore its equilibrium and liquidate all inefficiencies.
“Too big to fail” is absolute nonsense.
Paying back investors, costly wars, entitlements and bailing out the “financial terrorists” (who caused the crisis) all add to the national debt and to the dysfunctional economy that continues to operate until its debt will cease to grow. The problem with this system is that it created significantly more credit (someone is the creditor to all the debt) than “cash” money (money in your wallet). Every time debt expands, the credit supply also expands.
According to the FED, the Total Credit Market Debt Owed (TCMDO) is approximately 53$ trillion and 2.4$ trillion in the true money supply (M1). In other words, cash money is approximately 4.5% of credit (TCMDO/M1).
The result to our economy is that “boom” periods are hardly driven by cash money, as cash money is insignificant in relation to credit. Credit is what drives the markets, and it is this same credit that “busts” the markets as well, in times of credit contraction. In order for debt to expand, someone must be lending the US this money. At the moment, the lenders are China, Japan, and the OPEC countries.
But why do they continue to buy this debt?
Because they have too.
The US Dollar is the reserve currency of the world. You need it to buy oil, a vital component of any economy. Since other countries like China cannot print US dollars at their leisure, they have to get it from somewhere. They get it from trade with the US. The US buys products in Asia and the rest of the world with US dollars, and in turn these same dollar surpluses are used to buy oil and US bonds, creating a much needed artificial demand for US dollars.
This is also how the enormous US $558 billion trade deficit in 2011 was financed. The US has been in a trade deficit since the 1980′s and it continues the grow as jobs and manufacturing are being lost to more competitive nations. The trade deficit also accounts for the national debt. The financing of the debt creates artificial demand for US bonds which helps lower the interest rate and coincidentally helps to raise the debt levels even higher.
The table below shows the leading foreign holders of US debt, which are China and Japan, followed by the OPEC countries. These are the main financiers of the US trade deficit.
But here is the Achilles’s heel for the US debt scheme:
In order to maintain and continually expand the debt, the US dollar needs to remain the reserve currency. In order for there to be continuous demand for these dollars and debt instruments, the US dollar needs to maintain a hegemony over competing currencies. Any threat to the dollar needs to corrected immediately. or else confidence in the US dollar will be quickly eroded and the subsequent tsunami of US dollars abroad rushing into the US will cause hyperinflation as never seen before.
William R. Clark’s excellent book, Petrodollar Warfare, treats this issue precisely, going in depth into the Petrodollar collapse and how the US maintains its dollar supremacy with its current imperialistic foreign policy. This gem of a book is a definite read for anyone wanting to know how the US truly maintains its power on the world stage.
Undoubtedly, the extent of US debt would never have been possible had the US dollar not been the reserve currency and had there been less favourable global trade policies to provide a channel for the distribution of dollars.
Why must the debt grow every year?
To keep the debt-servitude paradigm going. To increase economic activity in a country operating in this type of system, you need to increase the level of credit and thus debt grows in tandem. This is self serving: if debt is the “fuel” to increase economic activity, interest payments will become larger and larger, until eventually it reaches a point where debt can no longer be increased. This point is known as the Minsky moment–when there is no net benefit to extra debt.
Adding debt, both public and private, creates an environment of servitude among the population while the banks are generating extra profits. Through their lobbyist groups, the financial terrorists create favourable laws to keep people enslaved with debt.
Real estate, for instance, is a heavily subsidized investment; such subsidies entice people to purchase real estate and as a result, people are unwittingly working for the banks. In a real free market, people save money for a purchase.
The word “save” is becoming archaic in this debt servitude paradigm, a paradigm that was build on sand and cards and that can and will eventually collapse. The foundation, of course, is confidence in the US dollar.
So there we have it, in our “creditopia” world, if debt does not expand, the economy cannot grow and jobs cannot be created. In order to increase debt, foreigners have to continually finance the ever growing debt by purchasing government bonds and selling consumer products to the US. In turn, the US must increase the level of consumption, decrease savings, and eliminate the threat of any nation posing a risk to the US dollar hegemony. Is this a symbiotic or a parasitic relationship? Is is certainly a relationship that cannot grow forever. It poses an economic risk for ALL nations due to the interconnectedness of the global economy.