Wild Bill’s Weekly Wanderings 26 July 2010
Following on from last week this week we feature more from people whose opinion we respect.
Among the best is Eric King. Eric operates with conviction – as does Eric Sprott. Last week, Eric K interviewed Eric S and I urge readers to check out the audio.
For those of us that prefer to read, I provide a summary of the main points of the interview here.
Eric Sprott with Eric King
The busted “Bailout and Stimulate” formula
The net impact of the stimulus contributions and promises made since 2008 have resulted in a combined budget deficit of close to $2.5 trillion dollars and an incremental net increase in GDP of $200 billion. A $200 billion return for a $2.5 trillion increase in debt represents a terrible return on investment. It implies that the net impact of the stimulus on GDP since 2008 has been a mere 9 cents for every deficit dollar spent. Buying dimes with dollars is bad business, government-funded or not.
(Quoted from the May issue of “Markets at a Glance”.)
It’s the DEBT, stupid! After the stimulus program has been applied and then terminated, the debt has markedly increased, there’s no growth to speak of, and no one has any idea how this debt can be repaid…
Most large banks around the world are operating with way too much leverage. The risk in the system is “unbelievably immense relative to the amount of capital in the system”.
Quantitative Easing II (QE 2) – may be beginning already… Apart from the direct stimulus provided by TARP etc., there has been effectively a ZIRP (zero interest rate policy) in place now for quite some time. The banks can borrow at 0%, lend out at something above 0%, lever that up, and do quite nicely – thank you very much. Pretty soon, they can start reporting favorable earnings…
[Aside: while the above is happening, the banks are quietly starting to write off some of the toxic assets still on their books – which they have been allowed to mark to wishful model, rather than marking to market.Damn – I wish I could persuade my bank to treat my overdraft as virtual in this way. I can just imagine the look on the face of my so-called “personal banker” if I said “Hey listen – everything’s cool – My overdraft of $10,000 dollars is really only $1, 000 according to my model – so I can borrow another $9,000 right?” What a sick joke.]
From “green shoots” to cliff diving
The current set of economic data points for the US is just horrible – and the trend indicates even worse to come. Printing money is losing its effectiveness as more and more is printed.
[Aside: It’s just like drug addiction, and for a very good reason – the processes are analogous. As a drug addict increases consumption of whatever it is, the body becomes habituated to the dose – which means that the dose has to be increased to produce the same kick. In the same way, as a society becomes addicted to the availability of cheap credit in order to function, the greater the increase in credit required to maintain the same level of economic activity.]At all levels, national, state, corporate an individual, we have to reach rock bottom, i.e., we have to either renege on our debts or come forward with a credible plan for debt reduction. The Keynesian approach of continually increasing debt to pay off debt definitely cannot work in an environment where economic growth is anaemic at best.
[Aside: In China, on the other hand, where there is currently a supposed 10% annual growth, it just might work… Oh wait – they just happen to have N trillion US dollars in reserves, right? Seems like the Chinese might not need life support after all. Note to Mr Geithner: maybe, just maybe, it’s not such a good idea to keep lecturing your banker. And please don’t keep telling us you support a strong US dollar policy – that’s another really sick joke.]Gold
Eric agrees with Ted Butler that there has been extensive manipulation of both the gold and silver paper markets by the bankers.
[Aside: The powers that be might prefer to say that the precious metals paper market prices were “regulated” or “governed” – sounds so much more reassuring, eh?]Just imagine what would happen if the price of gold were $250 per ounce today. The worldwide demand for gold would be extraordinary… The continuing financial shenanigans are almost certain to ensure an inevitably rising gold price (probably with hiccups though) over time. The price of gold is the canary in the coalmine – which is why there have been and are so many public pronouncements about it from such luminaries as Alan Greenspan and Paul Volcker.
Social breakdown coming to the US?
If jobs cannot be produced, some people are going to get desperate….
US dollar outlook?
All fiat currencies eventually assume their intrinsic value – zero! Owning these currencies or storing your assets in them is unsafe! Now your usual investment advisor might – if push came to shove –recommend that say 5% -10% of your net worth be in precious metals – Eric stated candidly that WAY BEYOND 50% of his assets were in gold and silver – and that he slept very well at night!
He advised us listeners to “go and do thou likewise”. Pretty powerful stuff.
Jim Puplava and Financial Sense
Why did I make the association of Eric King with Financial Sense? Well, for one thing, Eric and Jim are good friends. I have listened to Financial Sense religiously since it’s inception on the Internet. I never cease to be amazed and grateful that such a high quality program is available for free. After all, one can pay a lot of money for vastly inferior offerings – on mainstream media, for example…
Thank you for the fantastic public service you provide, Jim.
What I like most about Financial Sense is the quality of debate on the show. I perceive Jim as being ultimately fair-minded – he always presents both sides of an argument, and asks listeners to think for themselves and make up their own minds. In an age which is characterized by communication using slogans or political soundbites – like swarms of locusts, in the words of Leonard Cohen – this is truly a rare and valuable gem.