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Wednesday, July 27, 2005

China and the Renminbi/Yuan

China has been creating out of thin air plenty of Yuan/Renminbi over the last several years and it looks like they will be creating plenty more over the coming years. I wouldn't be surprised that at some point there is a rising prices problem in China and a lot of unhappy Chinese. I don't have a sense for when though.

This Alex Wallenwein is one smart cookie and has written a couple of articles about China and its fiat token.

CHINA'S DIRTY TRICK

CHINA: From Revolution to Revaluation

Monday, July 18, 2005

America and the US Dollar

If you lose the ability to use money (something that is nobody's liability like gold and silver) and an honest reliable currency (a financial contract like a note that is redemable in gold or silver upon demand) you will lose your freedom. If you lose your freedom you will lose your economy. It might take decades but if that trend stays in place it will happen.

After 1971 and the Brenton Woods Agreement, the world's financial system changed to something like it was never before in say the last several thousand years. Americans and people in many other countries mostly lost the ability to use real money and honest reliable currencies. They were mostly forced by governments to use tokens like the US Dollar. Pieces of paper that are redeemable in nothing. Since they are redeemable in nothing, there is no limit to how many can be created. The supply of money is limited by how much can be had from the ground in the case of gold and silver. The supply of a currency is limited by the supply of what the currency is redeemable in, usually gold and silver. With tokens there is nothing that a token is redeemable in so there is no restraint on how many can be created. The word "Note" in the title of an American "Federal Reserve Note" is fraud.

So, since 1971 the supply of the US dollar has been increasing at a rate that if plotted on a graph is a compound curve heading to the sky. The rate of increase in the supply is increasing.

The rate of the increase in just the reserves of central banks around the world is a compound curve heading for the sky.

The US government's budget deficit, the one everybody hears about, was for 2004 about $US 413 Billion. The official US government's budget deficit using GAAP (Generally Accepted Accounting Principles), the one almost nobody hears about, was about $US 11.2 trillion dollars. That's right. Trillion.

The US government has unfunded liabilities of $US 47.3 TRILLION. The US has a total government, corporate and household debt of $US 38 TRILLION. That adds up to $US 85.3 trillion. An absurd, can not be kept, world record breaking amount, whether you want to measure it in nominal or relative ways.

There are going to be a lot of broke debtors as well as creditors since the Piper always gets paid and does not care who does the paying.

Governments only have 3 ways of getting revenue now a days to meet these promises whether debt or unfunded liabilities.
1.) They can steal it through taxation.
2.) They can borrow it.
3.) They can create more tokens out of thin air which is theft of value stored in the tokens

The US government can not increase taxes without crashing the economy and therefore it's revenue.

The US government can not borrow more at some point. It's interest costs on debt would get too big taking up too much of its revenue going to interest on debt therefore crashing the part of the economy that is government spending that some huge number of people and corporations depend on. That crashing part of the economy would take the rest of the economy with it.

The US government can create tokens out of thin air (Ben Bernanke's helicopter "money") to pay their obligations thus devaluing existing tokens. They are already doing this but they would radically need to increase the rate at which they are doing this. This radical devaluation of the "money" as people call it (remember "money" is now simply tokens) will crash the US economy. That is what **hyper inflation** does.

America is simply screwed. Since Americans now a days are mostly child like and clueless/ignorant of the situation they are in, (they have already given up almost all of their individual rights to their government.), I expect a great depression in America. Their only protection from their government and themselves is mostly the ownership of gold and silver. But they would need to educate themselves first before they made any moves in that direction. I can not possibly see this happening since government schools have dumbed down Americans so much over the generations. So I have to expect a great depression in America.

Unfortunately I do not see Americans knowing what to do about a great depression after they are in it. They have lost too much knowledge to do anything about it. They will just continue to look to their government to "do something" and never know that their government is the entity that caused their great depression in the first place.

Yes, this will affect other economies in the world. So, flee the US Dollar while you still have a chance. The financial/economic scene in America should be ugly about 5 years from now, I figure.

Tuesday, July 12, 2005

US Dollar

Today the US dollar broke down through its 10 week long uptrend line while at the same time completing a 4 or more down days in a row end of upward trend signal. Good for gold and silver holders.

US Treasury notes and bonds may have completed double tops.
A 6 month chart of the 10 year US Treasury note
A 6 month chart of the 30 year US Treasury bond

The note broke down through a 3 year up trend line. Then a couple of months ago broke up through a year and a half down trend line. I find that odd considering the trashy fundamentals of the USD. Strange. Still this possible recent double top may indicate that the note is going back down through that down trend line, particularly if the US dollar is topping here. We'll see.
A nine year chart of the 10 year US Treasury note

Monday, July 11, 2005

US Dollar COT Report

The commerical category in the COT (Commitment of Traders) report now has the largest net short position in the US dollar since the gold bull market began. The speculator category now has the largest net long position for the same period of time. These positions were built up in just about 2 1/2 months.

This is very bearish for the US dollar and very bullish for gold and silver. It should be something to watch these positions unwind.

In the last few weeks, some US dollar technical indicators have been turning down or started moving sideways as the dollar continued on up. This divergence is bearish for the US dollar.

Thursday, July 07, 2005

Gold Certificate Ratio

My understanding of Jim Sinclair's gold certificate ratio concept is that it is what the USD should turn into.

What I'm getting is that the current **nature** of the USD will cease to exist. That its nature will change. That its **quantity** at some point, what ever it is at that point, will stabilize. Therefor the USD measured purchasing power (real) gains of gold will for the most part stay in place. Unlike after the last gold bull market where gold gave up most of its 400% real gain in USD prices, using the PPI for figuring.

"This time it's different" is one of those phrases I'm leary of. If they fundamentally change the nature of the USD, then it could be different this time. "it" being gold holds most of its USD priced purchasing power gains.

That this could possibly mean that we don't have to be on the edge of our seats looking for gold to break a 10-12 year or so french curve/straight power uptrend line to lock in real gains.

If this were to occur, I should think that other governments would be forced to do the same thing.

Will the USD remain as the reserve currency for the world's central banks? I don't know. It could lose that function on the way to its bottom.

Silver could be a bit different. Its supply (really low) relative to present and future demand (could be quite high) is different than gold since there is a large amount of industry use for it in addition to probably growing demand for it as real money. Very high priced silver, say USD 200/oz, 300/oz or more, could produce an amazing spike in silver that slowly goes down year after year as ultra high silver prices produce a *lot* more silver over the years compared to the amount that is being mined now a days. As time goes by we'll get a better handle on that.

So what is the price of gold going to top out at in USD prices?

My understanding of what Sinclair is saying is that foreign holders of US government debt are going to value the total of their government debt holdings this way:

They're going to say that the total USD par/face value of their debt should be valued so that it does not exceed the USD value of the total gold owned by the US federal government.

It should not be too hard for the world to figure out the USD par/face total of US debt held by foreigners. So that can be considered a given on one side of the equal sign in the equation.

The next thing for the world to figure out is how much gold the US government actually has. ** GATA (also available in Chinese) ** says it has less than one half of what it says it has. US federal government gold has not been audited since back in the '50s. If the nature of the USD changes radically and gets turned into a gold certificate ratio, then the true amount of US government owned gold would have to come out into the open, could no longer be kept secret.

Once the amount of gold is known, then a USD total value can be arrived at. The amount of gold will have to be multiplied by a high enough USD price to equal the total par/face value of the foreign held US debt.

Sinclair is saying about USD 1650/oz. I think a much higher price is possible because I think the US government has far less gold than it says it has.

Because of Sinclair's history, going back to when he was young, his knowledge and his contacts, I have to place a fair amount of weight on this possible scenario.

Tuesday, July 05, 2005

Silver

Silver is now down 6 days in a row, into good support at this level. I think there is little left to the down side at this point.
The COMEX September futures

Silver's real story is starting to make it in some traditional publications:
"Silver's Breakdown or Bear Trap?" by Gene Arensberg at Resource Investor

It looks like Ted Butler's results of years of studying silver is enfluencing some more people: Butler Research

John Hathaway, manager of the Tocqueville Gold Fund, has a new study out:
"A Process of Elimination: A Speculation on Gold and the Credit Cycle,"

Friday, July 01, 2005

Serious Buying of Weakness

Today, despite **big** hits to gold and silver, the HUI (AMEX gold bugs index) closed up about .25%. This is serious buying of serious weakness in gold and silver. Amazing! This is the second time recently that this has happened, and confirms the really good move up the shares had Wednesday.

It is as if somebody knows something quite bullish about the precious metals in the near future (weeks) that we do not know.

Despite gold closing down for the week, the HUI closed up for the week. The shares are signaling the beginning of phase 2 of the gold and silver bull markets.