Headlines & Observations

By Michael Pennington © Copyright 2010 Pennco Coins

Bank of America takes a $2.2 billion loss – The charge was to settle some of the home loan claims. Since their money is a gift from the US Taxpayer, it really doesn’t matter to them. After all, it’s only fiat money and they have plenty of it courtesy of Ben Bernanke.

White House Economist: Failure to Lift Debt Ceiling Will Be ‘Catastrophic’ – Austan Goolsbee, chairman of the U.S. Council of Economic Advisers, said if Congress fails to raise the debt ceiling, the “impact on the economy would be catastrophic.”

“I don’t see why anybody’s playing chicken with the debt ceiling,” Goolsbee said on ABC’s “This Week” program. “If we get to the point where we damage the full faith and credit of the United States, that would be the first default in history caused purely by insanity.”

The government is slated to hit the legal limit on borrowing, currently set at $14.3 trillion, sometime in the spring, and some lawmakers have they said will demand tough budget cuts in exchange for their votes to raise the cap. Congress must agree to raise that ceiling or it could be forced to default on its obligations.

The U.S. has a $1.3 trillion federal budget deficit. President Barack Obama’s debt-reduction panel failed last month to agree on its chairmen’s recommendations for ways to reduce the annual deficit to about $400 billion in 2015.

Interesting that the government’s own economist is talking about “default” while the administration talks about how the economy is back growing???

Where has all the money gone? – As the year ended and the Stock Market continued partying, the US Govt spent $146B, or, over 10B per day….this bodes some real problems for 2011, as the debt ceiling will be breached much sooner than expected. But it begs the question: what happened to all that TARP money that was “repaid” and all that profit from GM stock, and from Citibank? This insanity will accelerate until there is hyperinflation and absolutely no way back. I suspect most of it was directed towards the Euro-Bankster bailouts….

Silver Eagle Sales Continue to Set Records – The US Mint just reported a total of 34,662,500 one-ounce American Eagle silver bullion coins were sold in 2010, up from 28,766,500 one-ounce silver bullion coins sold in 2009.

Even more astonishing, the Mint reported an incredible 1,696,000 silver bullion coins sold on the first day of American Eagle sales on Jan. 3, 2011.

Personal Bankruptcies set all-time record – The number of Americans filing for personal bankruptcy topped 1.5 million last year, as high long-term jobless rates and depressed home prices drove more households to seek court protection.

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UK Problems Are Intensifying

By Michael Pennington © Copyright 2010 Pennco Coins

Recently the British pound fell 3.0% against the US dollar. Some say it was because of UK bank exposure to Spain, which Moody’s warned could be downgraded. Others blamed the UK’s close economic link and heavy debt exposure to Ireland, which Moody’s did actually downgrade last week by 5-levels to Baa1. This low grade is barely above junk status.

These downgrades in different corners of Europe no doubt had some impact on Sterling’s weakness, but there is I think another factor closer to home. It is the growing awareness of the runaway spending and borrowing by the British government.

Despite all the rhetoric and promised cuts in spending by the newly elected coalition, the hard fact is that government spending and borrowing continue to soar – and look as if they are spiraling out of control. The following chart illustrates the magnitude of the problem as UK government debt nears £1 trillion.

Earlier this year, UK government revenue (the blue line) once again began to grow. It was an indication that the British economy was on the mend after the billions spent on the bailout of Northern Rock and the UK government’s rescue of most of that country’s major banks in the aftermath of the collapse of Lehman Brothers. But look closely at the above chart. Expenditures (the red line) remain on the same well-established upward trajectory, climbing higher every year. This growth in spending is unabated, and is now rising at about the same rate as revenue growth. As a consequence, the country’s deficit has barely shrunk from the record level reached at the depth of the financial crisis.

Note too the accounting sleight-of-hand at the end of 2007. How is it possible that UK government debt grew back then even though the budget deficit was negligible?

Following in the footsteps of Greece and other basket-case sovereign debtors so adept at creative accounting, UK government accountants glossed over the Northern Rock bailout, the net effect of which made the deficit in 2007 look smaller. Convenient accounting like this cannot possibly instill confidence in UK government bondholders.

The bottom line is that the UK’s huge deficit is not sustainable. It will lead to ever greater amounts of so-called “quantitative easing” by the Bank of England, and inevitably this money printing – the turning of UK government debt into British pound currency – will sooner or later lead to hyperinflation.

I had always thought that the US dollar would hyperinflate and collapse before any other major currency. Lately, I am not so sure. Government spending and borrowing in the UK look even worse than the dire levels being reached in the US. Therefore, the dubious distinction of being the first currency to hyperinflate in the months ahead may end up going to the British pound.

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Can The FED Stop Inflation

By Michael Pennington © Copyright 2010 Pennco Coins

Any statements by the Fed that it can control inflation are specious arguments because they assume the Fed controls the economy, but, in reality it does not. If it did, we never would have been in this mess to begin with.

Moreover, based on important cycle studies, the cycles for inflation point higher for at least FIVE more years, into 2016 — regardless of what the Federal Reserve does.

Bottom line: We are still in the early stages of the “great re-inflation” I’ve been telling you about for months. I think the Fed will find it difficult to reverse its policies. Even if it does, it will likely be too little, too late (as always) and won’t matter one iota in the grand scheme of things.

Moreover, the important question should not be whether the world is heading toward deflation or inflation, but rather, which sectors will inflate, and which will deflate?

For many of the reasons I’ve written about in the past I believe that deflation in the value of our money (its price and purchasing power are falling), and inflation in the value of hard assets will be the dominant macroeconomic force for many years to come.

The result of massive money printing is a collapsing currency, leading to escalating prices and eventually hyperinflation. This is in simple terms how every hyperinflationary period in history has happened. If in addition, there are world shortages of food, energy and other commodities, this will accelerate the process.

There are currently a number of indicators all pointing to escalating money printing and an imminent start of a hyperinflationary era. Here are some of them:
1. Fiscal Gap widening at alarming rates in many major economies.
2. Commodity prices at all-time highs.
3. Long term interest rates rising.
4. Most Currencies falling.
5. Precious Metals at all-time highs against most currencies.

Bearing in mind that we are likely to see hyperinflation in the US, the UK and many European countries, the $6-10,000 target for gold is much too low. The dilemma is that it is absolutely impossible to predict how much money will be printed by governments. In the Weimar republic gold reached DM 100 trillion. But it is really irrelevant what level gold and other precious metals will reach in hyperinflationary money.

What is much more important to understand is that physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money. Whatever real capital appreciation gold will have in the next few years is of less importance. But what is vital, is that physical gold (stored outside the banking system) is the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money.

Throughout history gold has protected investors against various calamities but this time, holding physical gold will be absolutely critical to financial survival.

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Meet The Foreign Banks You Donated To

By Michael Pennington © Copyright 2010 Pennco Coins

Based on their own documentation, we now know for sure that the Fed used $350,000,000,000 of US Taxpayer funds to save these 35 foreign banks:
The 35 companies in question (In order of $ donated)
UBS
Dexia SA
BNP Paribas
Barclays PLC
Royal Bank of Scotland Group
Commerzbank AG
Danske Bank A/S
ING Groep NV
WestLB
Handelsbanken
Deutsche Post AG
Erste Group Bank AG
NordLB
Free State of Bavaria
KBC
HSH Nordbank AG
Unicredit
HSBC Holdings PLC
DZ Bank AG
Republic of Korea
Rabobank
Sumitomo Mitsui Banking Corporation
Banco Espirito Santo SA
Bank of Nova Scotia
Mizuho Corporate Bank, Ltd.
Syngenta AG
Mitsui & Co Ltd
Bank of Montreal
Caixa Geral de Depósitos
Mitsubishi UFJ Financial Group
Shinhan Financial Group Co Ltd
Mitsubishi Corp
Aegon NV
Royal Bank of Canada
Sumitomo Corp

The only answer we don’t know for sure is why? We know they bailed out the US banks because it was their friends – the JPMorgans and Goldman Sachs who lost money in the derivative scam and needed to be reimbursed to stay in business. One can only conclude that Morgan and Goldman scammed these foreign banks into buying their crap mortgages for billions. The $350 billion reimbursement was nothing more than ‘hush’ money to keep the crime from seeing the light of day. Of course, it worked. The only protection against these crooks is Gold, which is like garlic to these financial vampire bloodsuckers.

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JP Morgan And CFTC Trading Limits

By Michael Pennington © Copyright 2010 Pennco Coins

Several important announcements were made last week. The first was a report that JP Morgan was in the process of covering their huge pile of shorts and were well on their way to completing their mission. This is simply NOT TRUE. There is no truth whatsoever in this report. JP Morgan is simply trying to soften the public view of the firm. Ever since Max Keiser has been promoting the bankruptcy of JP Morgan, the PR of the firm has taken a major hit on Wall Street. If they had covered even 5% of their shorts, the price of Silver would’ve risen by $10-$15. Besides they have no way to access that much physical silver in the market. This report was nothing but a lie.

Also last week, the CFTC said it was going to implement new rules regarding position limits on all commodities. This new regulation was designed to respond to public outcry over the penetration of huge limits by one or two trading firms. However, the regulations fell far short of forcing the large banks out of their huge positions by granting exemptions to traders who claim their positions are hedges against existing contracts. It never seems possible to get the crooks to abide by the rules. They always manage an out somehow.

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Europe Is A Train Wreck With Worse Yet To Come

By Michael Pennington © Copyright 2010 Pennco Coins

Researching problems in the Greek economy is like reading a financial comic book. All the players are clowns.

For example, the national railroad has annual revenues of €100 million… against a wage bill of €400 million and another €300 million in expenses. The Ministry of Agriculture hired 270 people to digitize photographs of Greek public lands… with one digital camera.

In 2001, the Greek government borrowed $1 billion from Goldman Sachs to help balance the budget. The deal relinquished future receipts from the national lottery, national highway tolls, airport landing fees, and even funds promised to Greece in the future from the European Union.

The government was burning the family furniture to pay current expenses. And now, they’re out of furniture. It’s all been burnt.

In total, the Greek government owes €1.2 trillion. That’s €250,000 for every adult.

Obviously, Greece cannot repay this money in sound currency. The only way out is for the Greeks to inflate the debt away – effectively stealing from their creditors with a printing press. That they haven’t done so yet is only because they no longer have their own currency, the drachma.

Instead, they are part of Europe’s common currency, the euro. And Europe is making every effort to maintain the mirage of a united economy. Unfortunately, no such thing exists. It’s merely a matter of time before the Greeks default.

It would appear your bankster has the idea that banks are a special case in capitalism, if indeed he is a capitalist at all. Badly run or obsolete businesses should fail unless they are a large bank.

The solution would be to nationalize all those banks, fire their talented upper management and directors, and turn their cases over to the justice department for prosecution. Then slowly unwind their positions, default on ponzi paper to other bankrupt too big to fails (in other words tell the de Rothchilds and Rockefellers to go screw themselves) while we make a transition to honest money.

That’s what would happen if we lived by the rule of law. It’s a good idea to at least envision what should happen once in a while, heh, heh. The collapse that your bankster worries about is going to happen anyway, made infinitely worse by putting the criminals who caused the problem in charge of the solution. We might as well get on with it and make sure it doesn’t happen again for a few hundred years by getting at the root of the problem.

Legendary investor, Jim Rogers, recently said, ‘Greece is insolvent, Portugal has a liquidity problem, Spain has a liquidity problem, Belgium has been cooking the books for a long time, Italy has been cooking the books for a long time and the UK is totally insolvent.’

So far Greece and Ireland, with bond markets indicating their fears that the governments will not repay debts, have had to ask for bailouts from the European Union. Debts in Spain are far lower but rising rapidly, sparking concerns that it, as the euro zone’s fourth largest economy, may also run into trouble.

Rogers said: ‘You need to let Ireland go bankrupt. They are bankrupt, why should innocent Germans, Poles or anybody pay for mistakes made by Irish politicians and banks.’

While debt owed by the British government is less, relatively, than the amounts faced by Ireland, Greece or Japan, the UK’s debts in total are 466% of annual economic output once consumer debt is included. That’s second only to Japan.

No, I don’t think the European model is going to work. And because it’s the world’s largest economic bloc, you’re not going to see global growth rebound until some kind of drastic restructuring of Europe’s sovereign debts takes place, or until the euro massively devalues.

As more creditors come to doubt these debt structures, you’re going to see a really big problem because Europe will be forced to monetize a lot of debt. That eventually will result in a lot of devaluation and a lot of inflation. Investors see all this coming, and of course are withdrawing from that currency zone…

I think eventually you’ll see some global solution to the sovereign debt problem… What I foresee is the Fed opening big swap lines with the ECB, and the European Central Bank buying sovereign debts of all these garbage states as they did with Greece. They’re just going to do their very best to inflate it away.

Will they be successful? I can’t say; this is a huge experiment in central banking. But if and when the Fed starts buying up Spanish debt, the American people will go haywire. They won’t stand for it. I don’t want to be long in stocks that day, I’ll tell you that.

Bottom line – austerity won’t work and QE won’t work either. It never has. The only thing left is inflation. That means much higher Gold Price to come.

Got yours?

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Headlines & Observations

By Michael Pennington © Copyright 2010 Pennco Coins

Steal a little and they throw you in jail, steal a lot and they make you king – Recently, a member of the Justice Department was asked why there hasn’t been one prosecution of any senior executives from companies at the heart of the financial crisis.  He said: “Where there is wrongdoing we will bring charges, but beyond that I just can’t comment.”

By all outward appearances, it seems the Justice Department either doesn’t want to prosecute systemically important frauds, or doesn’t know how. Or maybe it’s both. Or maybe it’s just that the perpetrators are the good friends of the regulators.

It wasn’t always this way. More than a thousand felony convictions followed the savings-and-loan scandal of the 1980s and early 1990s. Some of the biggest kingpins, such as Charles Keating of Lincoln Savings & Loan, went to jail. With this latest financial crisis, there’s been no such accountability. The fraud is 15,000% worse, but there has not been one conviction yet!

The Fraud Just Keeps Worsening – Fed has to buy treasuries because no one else wants them. Wonder what will happen when the Fed buys all $14 trillion of national debt?  I suppose they’ll invent a competing entity to bid and buy with itself…. abolish the fed.

Is it Possible some Insurance Company is a Counterparty to the JP Morgan Silver Short? – Just like AIG was used to pay-out taxpayer loot to the Goldman Executives… some counter-party could get the tax-payer loot for a cash settlement bail-out of the JPMorgue silver short via another insurer conduit … worked last time. Why not try it again?

I’d like to know if the Fed created and gave away staggering sums of money… TO THE OWNERS OF THE FED

China Sets Gold Import Record – The recent dismal payroll numbers indicate that US and European growth is definitely disappointing. Even with deficit financing in the US, the authorities can’t create any job growth.  People around the world are tapped out because of debt.  The anemic jobs growth, although a lagging indicator, was more significant for the rise in the unemployment rate and the low average hourly earnings.  The US is not going to be able to grow themselves out of their debt to GDP burden.  The only way to grow nominal GDP is to continue debasing the currency through worldwide quantitative and qualitative easing. It’s no wonder the Chinese, as we discussed in the past, have now imported five times the amount of gold in 2010 than they did in 2009.  The Chinese like to buy gold on the dips, they don’t like to go chasing the market.  Just like they used to buy US bonds, now they are buying gold.  As the recent PBOC spokesman implied, they are going to continue to divest their dollars into gold as a monetary asset.

ECB Could Join Fed’s Money-Printing Rampage – Greece, Ireland and Portugal might be small potatoes as far as investors are concerned; but the scope of Europe’s monetary turmoil is deepening as Spain sinks deeper into the economic abyss. In fact, Spain will also probably require financial assistance at some point.

Spain is the euro-zone domino that might trigger another global panic. Its economy is Europe’s fourth-largest and will probably absorb most of what’s left of the European Financial Stability Facility (EFSF).

As Europe’s sovereign debt contagion spreads to more countries (i.e. Italy and Belgium … these countries got infected in late November, and the costs of financing their government debt obligations continue to rise), more money will be required.

Increasingly, the European Central Bank will be forced to join the Fed and introduce broad-based quantitative easing – that event alone might spark a German backlash because of fears of inflation or hyper-inflation. This could spell the end of the euro simply because the cost of bailing out the periphery will eventually force the Germans to abandon the European Monetary Union.

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