Weekly Wanderings 16 September 2009

As usual in these weekly musings we present you with interesting items we’ve come across during the week… The financial news is coming fast and furious at the moment… Last week gold closed at its highest weekly closing price in history….

This week we return to two commentators we have featured before in these pages, Gerald Celente of the Trends Research Institute and Max Keiser of MaxKeiser.com.

We would strongly urge you to watch the complete video interview – its only 11 minutes – with Gerald Celente. It is important to realize that Mr Celente is not some crackpot – he is Director of the Trends Research Institute, the forecasting record of which, over time, speaks authoritatively for itself.

We summarize below (the emphases are ours) the main points he makes concerning what has occurred in the financial world over the last year and what the trends are suggesting to the Institute.

  1. There is no economic recovery – rather, it’s a cover-up.
  2. The US standard of living has to suffer a further decline.
  3. The US has to undergo a second American revolution, or a Renaissance, with possibly the former leading to the latter. At present, the trends favour the former…
  4. There will be a third party formed in the US, before the end of President Obama’s first term, which Mr Celente is calling “Progressive Libertarianism”.
  5. If you want to get an idea of what is coming, watch the trend in the US dollar index and the price of gold…..

Now, over at MaxKeiser.com, we find the following…

Risk of deflationary collapse greater now than in 2007, Janet Tavakoli
September 14th, 2009 by Stacy Herbert

Stacy Summary:  We’ve just interviewed Janet Tavakoli for our first episode of The Keiser Report.  If you don’t know her, you should.  She wrote a fantastic book, Dear Mr. Buffett.  Max and I are on our second read of it.  You really must get this book if you want to understand derivatives from one of the foremost experts on it who writes in plain English about how these financial tools became instruments for widespread fraud that then led to financial crisis.   She also gives loads of positive advice and insight.

Here is a summary she provided for MaxKeiser.com on where she thinks we are today two years since the crisis began:

Regarding the outlook, my analysis is grim.  I am not a doomsayer, I follow the cash, and so far, I’ve been correct, and the government has been wrong.  Here’s the situation.  We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007.  After the greatest Ponzi scheme in the history of the capital markets, we’ve seen history’s greatest fiscal and monetary expansion, but it hasn’t worked.  Debt levels of consumers and business exceed the capacity to repay.

  • Our fundamental financial and economic problems, i.e. overleveraging, lack of transparency, have not been solved.
  • GDP is adjusted for deflation (and inflation when it is relevant). GDP in U.S. is actually 2.1% worse than reported, i.e. nominal GDP is worse.
  • GDP looks better because prices fell more rapidly than income.  But that means a negative wealth effect, and loan payments are made from nominal income, so falling income means more loan defaults in our overleveraged environment, because we never deleveraged.
  • Since 2008, capacity utilization has plummeted; businesses have no pricing power; U.S. lost 6.7 million jobs but numbers are underreported; personal income tax receipts are down 21%; corporate tax receipts are down 58%; U.S. deficit will exceed $1.8 trillion; govt. spending is now 185% of tax receipts; 13% of mortgages are seriously delinquent and/or in foreclosure; huge decrease in personal net worth; 15 million mortgages exceed the home value.  We’re on a massive debt spending spree.
  • Income on all levels is not sufficient to make debt payments.
  • The U.S. cannot borrow $2 to $3 trillion more, so we can’t forestall deflationary collapse

Now, we agree in broad terms with essentially all of the above…

However, as Ben Bernanke has stated, the Federal Reserve has a technology called the printing press….. and can drop money from helicopters as required… Hence his nickname of “Helicopter Ben”, or more appropriately, “B52 Ben”….

Also we recall a speech that Alan Greenspan, the former head of the Federal Reserve made in Begium during his term in office, in which he repeated 5 times: “The Federal Reserve stands ready to create money WITHOUT LIMIT…..” (Our emphasis)

For a contrasting viewpoint to the deflation thesis, check out the comments of Bud Conrad, chief economist over at Casey Research.com, in this audio clip with Jim Puplava, of Financial Sense. (the interview starts at 1 hour and 8 minutes into the webcast).

We had the pleasure last November of attending a lunch and dinner with Bud Conrad, here in Auckland, at the invitation of a friend of ours Louis Boulanger.

On our site here we are also interested in resources in general as well as precious metals. This week we would like to draw your attention to this very interesting article on sustainability that has appeared over at The Oil Drum.

BTW, this site is an essential resource if you wish to learn about topics such as peak oil, with many experts commenting here.

The article above is written by Joseph Tainter, a Professor in the Department of Environment and Society at Utah State University, and author of the seminal work “The Collapse of Complex Societies”.

Thats all for this week – check back next week for more or if you’re really lazy go and  enter your name and email address in the box to the top right now.  You’ll then receive our latest articles once a week straight to your inbox.

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