Platinum market deficit to hit 844,000oz in 2013 - HSBC

In other words, HSBC analysts don't know what is up or down.  Talk about schizophrenically non-committal.  The fundamentals scream bullishness, but since HSBC is a big naked short in the precious metals, they have to paint a bearish picture.  See JPMorgan.

Long story short:  as long as supply deficits continue, platinum prices will rise long-term, even if short-term volatility is technically manipulated by the perma-shorts, who see the same chart patterns as the rest of the traders.  They will trip the resistance and support levels, cleaning out the weak hands.

They correctly indicate that the growth of platinum ETF's are short-term bullish for platinum prices, but as we've found with gold and silver, the ETF's are not 100% backed by physical inventory, and are ultimately paper shorting vehicles for the bullion banks, acting as agents for the Fed, Bank of England, and ECB.  Paper is sold on liquidation, but no physical delivery is taken--unless of course, you're George Soros who owns at least 100,000 shares.  hashtag fractional reserve ponzi scheme

http://www.mineweb.com/mineweb/content/en/mineweb-political-economy?oid=194402&sn=Detail

Guess which hypocrite wrote this in 2003?

Mr. "Deficits don't matter", and Nobel Laureate himself.  This ****ing a-hole sounds like a Tea party member bashing President Obama.  Instead, it is Paul Krugman back in 2003 bashing the previous Administration for being fiscally reckless.  The same neo-Keynesian apologist who today insists the Fed should print more money, and go deeper into debt.

http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that's way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account -- as the C.B.O. cannot -- the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it's clear that the 10-year deficit will be at least $3 trillion.

So what? Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don't matter. But we're looking at a fiscal crisis that will drive interest rates sky-high.

A leading economist recently summed up one reason why: ''When the government reduces saving by running a budget deficit, the interest rate rises.'' Yes, that's from a textbook by the chief administration economist, Gregory Mankiw.

But what's really scary -- what makes a fixed-rate mortgage seem like such a good idea -- is the looming threat to the federal government's solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 -- make that 3, O.K., maybe 4 -- percent of G.D.P. But that misses the point. ''Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.'' So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

How will the train wreck play itself out? Maybe a future administration will use butterfly ballots to disenfranchise retirees, making it possible to slash Social Security and Medicare. Or maybe a repentant Rush Limbaugh will lead the drive to raise taxes on the rich. But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

I think that the main thing keeping long-term interest rates low right now is cognitive dissonance.

Spoken like a true fiscal conservative.  Only problem is Krugman is a progressive liberal hypocrite.

Economics Professor Laurence Kotlikoff - Bernanke Playing With Fire

http://youtu.be/sFiErsgQwF0

A 'very different' platinum market swings into 600,000oz deficit

http://www.mining.com/a-very-different-platinum-market-swings-into-600000oz-deficit-74887/

California facing higher $16 billion shortfall

http://news.yahoo.com/california-facing-higher-16-billion-shortfall-213905732--finance.html

Deficit Will Grow While Economy Shrinks

http://usawatchdog.com/debt-deal-passing-deficit-will-grow-while-economy-shrinks/

$38 Billion In Cuts? Make That $353 Million

http://www.zerohedge.com/article/38-billion-cuts-make-353-million

To give it scale, let's use numbers the average Joe can relate to.  Say my total household debt is $75,000, but since I'm the government, I won't include long-term debt (Social Security, Medicare, Medicaid, Fannie Mae, Freddie), and will only count my immediate obligations and declare my official debt is only $14,400.  My income this fiscal year is $2,160, while I am spending $3,760, which equates to an annual deficit of $1,600.

So I finally convince my wife that we need to tighten our belts, as well as somehow increase our income in order to reduce/zero out that $1,600 deficit--because every annual deficit adds to our total debt level.  After many rounds of theatrics and arguments so loud our neighbors can hear us, we finally congratulate ourselves by declaring to the world that we have managed to trim $38 from our annual budget.  I repeat:  $38.

It gets worse.  Upon further inspection, our CPA, who is allegedly independent--despite having a track record of being easily influenced by our exhortations to doctor our books, declares the actual savings will only amount to $ 0.35.

That's it:  despite a $75,000 household debt, and spending $1,600 above my income (highly optimistic since the deficit calculation doesn't take into account total debt servicing expenses), I'm celebrating because I have managed to save 35 cents.

That's the true scale of the charade Congress and the Obama Administration have been partaking in "solving" our debt problem.  The only difference in my example is I've lopped off a bunch of zero's (i.e., I moved the decimal point 9 places to the left).

NOW do you understand why I've kept banging the drums that whatever action our government takes going forward:  cutting taxes, increasing taxes, increasing spending to stimulate the economy, and/or reducing spending in an attempt to get our fiscal house in order, it is too little too late.  No matter what stimulative or austere measures our politicians and monetary authorities take, it is GAME OVER.  The interest expense to service our humongous debt will overwhelm whatever tax revenues our government takes in.

Why is this important?  Pretty soon, our government's interest expense will outpace funding for our national defense.  Even if everything remained static and debt levels don't climb from here, every 1% rise in interest rates, increases our interest expense $144 billion (and interest rates WILL rise, since they're zero right now).  And pretty soon after that, that same debt-servicing expense will completely overwhelm every other vital government service.  The government will be paying off that debt before allocating funding to protect us, educate our children, feed the hungry, the retired, the disabled, and our veterans.  There will be no government services left = bankruptcy.  The difference being the government won't be around to bail out a bankrupt entity like GM or the banks like they did in 2008.  Because this time around, it will be the government itself that is bankrupt.

So how will the government feign solvency and creditworthiness?  They will keep printing increasingly worthless dollars, giving it fancy names and acronyms in order to hide the true nature of their counterfeiting schemes.  Meanwhile, savers, investors, Treasury bond owners, and anybody holding cash will all be wiped out.

CBO: Social Security to Run $45 Billion Deficit in 2011

http://www.cnsnews.com/news/article/cbo-social-security-run-45-billion-defic

When Japan collapses

http://theburningplatform.com/blog/2010/09/15/when-japan-collapses/

Fed prepared to act if economy worsens

In the "No $hit" category of Fed press conferences, Chairman Bernanke announced that the Fed was "prepared to act if the economy continued to weaken."

http://www.nytimes.com/2010/08/28/business/economy/28fed.html?_r=1

QE 2.0 is just around the corner. The problem is it won't end there.

Enron accounting has bankrupted America

http://finance.yahoo.com/tech-ticker/%22enron-accounting%22-has-bankrupted-america-u.s.-deficit-really-202-trillion-kotlikoff-says-535354.html?tickers=udn,tlt,tbt,uup,TIP,%5Egspc,GLD&sec=topStories&pos=9&asset=&ccode=

“Forget the official debt,” he tells Aaron in this clip. The “real” deficit - including non-budgetary items like unfunded liabilities of Medicare, Medicaid, Social Security and the defense budget - is actually $202 trillion, the professor and author calculates; or 15 times the “official" numbers.

“Congress has engaged in Enron accounting,” says Kotlikoff, who recently penned an op-ed for Bloomberg entitled: The U.S. Is Bankrupt and We Don't Even Know It.

California facing IOU's again

http://www.ft.com/cms/s/0/3e65bb32-abb9-11df-9f02-00144feabdc0.html

John Williams from shadowstats.com

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=103698&sn=Detail

If you look at those GAAP-based statements and include in the deficit the year-to-year change in the net present value of the unfunded liabilities for Social Security and Medicare, what you'll find is that the annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009. Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit. It can't raise taxes enough to contain this. On the other side, if it cut all government spending except for Social Security and Medicare, it still would be in deficit. With no political will to contain the spending, eventually the government meets its obligations by revving up the currency printing press.

Bud Conrad on sovereign debt

His notes:

We have gone through 3 of 4 predictable ordered phases:

1) Credit Bubble (everywhere, even subprime);

2) Credit Crisis from the bubble burst;

3) Massive Bailout, with the government absorbing the bad credit going into debt to lift the collapsing private sector, keep politicians in power, and support industries slopping at the government trough;

Leaving us with one more logical extension:

4) Currency Crisis. The massive government debt can't be paid off, confidence in the dollar will weaken more, and the eventual result will be repudiation of the debts that can't be paid. That is the step that comes after the Banking/Financial/Credit Crisis.

In our case, it is assured by the accumulated trade deficit on top of the government deficit. I was trying to give some parameters about that toward the end when Brian was asking for a time frame. The fact is that I don't know when, but I'm confident it will happen; in part because no one is worried about it.

Hyperinflation? Part 1

Watch the entire 9-minute video.

Niall Ferguson on sovereign debt

I won't chastise Niall Ferguson for teaching Economics at Harvard (sarcasm intended), since he is completely dialed into the sovereign debt problem among developed, westernized countries. I saw him in a Bloomberg TV interview last week, but couldn't find the video clip. Thanks to my friend Dick, here is an article which captures his main points on the default risk of the Club Med countries--and of the US.

http://www.ft.com/cms/s/0/f90bca10-1679-11df-bf44-00144feab49a.html?nclick_check=1

It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history – reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain and possibly others, it may take much horse-trading before one can be reached.

Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect

For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Euro vs. US

“Let me get this straight: investors are getting out of the euro zone ( 2010 deficit/GDP 6.7 per cent; debt/GDP 88 per cent, according to OECD) because of its poor fiscal situation and flocking to the U.S. (10.7 per cent and 92 per cent, respectively).”

- Erik Nilsson, an economist at Scotia Capital:

Warren Buffett on inflation

This author needs no introduction, and his concerns need no preamble.

http://www.nytimes.com/2009/08/19/opinion/19buffett.html?_r=2&adxnnl=1&ref=opinion&adxnnlx=1250679809-vkyiY4/BtTu6cDDesIMy4w

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

As much as I agree with Mr. Buffett on the abovementioned scenario, I do disagree with this statement:

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

Actually, studies have been performed on the thresholds of deficits and debts as precursors to inflation and currency crises. See my previous blog on this topic.

http://gregnguyen.blogspot.com/2009/10/tipping-point-for-hyperinflation.html

Economist Peter Bernholz is an expert on the subject of national hyperinflations. He has studied all the major cases of hyperinflation since 1980. His conclusion: The tipping point occurs when a government’s deficit exceeds 40% of its expenditures.

Guess what? The U.S. will hit the 40% mark in 2009.

Mr. Buffett may be wrong on the existence of researched hyperinflation data, but he is in agreement that the US is in danger of entering a period of uncontrolled deficit spending and eventual banana republic-style inflation.

Bernanke's dilemma

Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner are walking a tightrope. Keep interest rates low and keep the printing presses humming along are stimulative to the economy and help exporters remain competitive. But it also induces asset bubbles and devalues the USDollar.

Raise interest rates and tighten monetary policy, and equities and bond markets will tank, roiling any chance of an economic recovery.

The 800-pound gorilla is the huge debt--and servicing that debt, which increases the deficit--which forces debt monetization again. And round and round we go...

http://www.nytimes.com/2009/11/23/business/23rates.html?_r=1

Are precious metals reaching bubble status?

This question has been raised by inflationists and deflationists alike. Most people believe the prices of gold and silver have increased too far, too fast. In my opinion, they are wrong.

Without forecasting specific targets, let's look at facts. The US government national debt has climbed above $12 trillion. The 2009 budget deficit was $1.4 trillion--and rising going forward. Entitlement programs including social security, Medicare, Medicaid, and two ongoing wars bring our unfunded liabilities to over $100 trillion. There are only a few ways to cut the deficits and pay down some of that debt: raising taxes, reducing government spending, increasing productivity and economic growth, and inflating the money supply. We should expect all four. Inflation devalues the USDollar, reducing the burden of those huge debts. But savers and creditors are punished by artificially suppressed interest rates and a debased currency.

To provide personal context, I've been long gold and silver since November 2008--and have been ridiculed the whole way up by almost everyone. For those who believe we are in bubble territory for precious metals, I will offer the following counter arguments.

Many Americans are becoming aware of gold as an asset class, but MOST AMERICANS HAVE NOT ACTED UPON THIS AWARENESS. Furthermore, financial planners don't earn fees when clients buy gold and silver bullion or coins, so they haven't been endorsing owning precious metals as a hedge against inflation and financial crises. Despite foreign governments encouraging citizens to own physical gold and silver, the US government downplays the fact that precious metals prices have soared over the last decade.

Americans have seen Cash4Gold commercials ad nauseum, but these television commercials entice people to SELL grandma's gold jewelry, allowing the general public to gladly pocket an extra few hundred dollars. The problem is they are only getting 50 cents on the dollar--selling into a bull market. In any case, the scrap market is dwindling, as consumers aren't selling as much as in previous rallies.

The smart money is taking the opposite side of the trade: hedge funds led by billionaires John Paulson, Jim Rogers, George Soros, Paul Tudor Jones, and David Einhorn are BUYING gold and gold-related vehicles. So are central banks worldwide, who have been net sellers in the past. They are now buying.

Of course, gold and silver will eventually reach bubble status--every asset experiences peaks and valleys over time. But the secular peaks aren't $1150 or $18 per ounce, respectively. As a reference point, $2400 and $140 represent inflation-adjusted peak values of $850 and $50 in year 1980 for gold and silver, respectively. With the world awash with more trillions of dollars today than in 1980, the true value of gold is $6300, according to French investment bank Societe Generale. Divide that by 15, the historical gold/silver ratio, and one derives a peak value of $420 for silver.

Again, these are not forecasts, but valuation models based on historical precedent. One could argue gold will fall to $250, or silver back to single digits--back to year 2001 levels. No one has a crystal ball, but all we can do is make educated calculations, based on economic fundamentals and previous history. The commodities markets, specifically precious metals, are a very volatile asset class. Equity shares in resource companies producing said commodities can be even more volatile. Hence, the disclaimers. A long bet on commodities is a bet against central banks worldwide, which by extension is a vote of skepticism against sovereign governments' inability to keep their fiscal house in order. Some will accuse these trades to be unpatriotic. I view them as protection against the abuses of central bankers gone wild--a means to preserve the diminishing purchasing power of an impaired currency--the USDollar.

This is one potential scenario, but one that is becoming increasingly apparent, despite skepticism from our government economists, academia, banks, and the general public. I admittedly swim upstream when it comes to populist Keynesian economics. On the other hand, mainstream financial models haven't exactly worked like clockwork, either. Look at the carnage of collapsed banks and government agencies guaranteeing home mortgages, for instance. And look at equities and real estate. It hasn't been pretty...

Whether one chooses past performance, or money supply vs. above-ground gold supply dynamics, the prices of precious metals appear to be headed higher--much higher. With any bullish trend, it won't run straight up, so the corrections will be painful, but the spikes will be breath-taking--and unpredictable. Trading the tops and bottoms will be difficult to time due to high price volatility. Buying and holding, while averaging in on dips may be prudent. When and if the gold mania kicks in, I'll know it when the headlines are splashed across the major media outlets. I will probably average out at that point. And when bartenders and cab drivers recommend obscure gold mining companies, giving advice on "how to make a killing" on the next hot trading tip, I will be heading for the exits. We are not even close to that mania phase yet.

These are my opinions only, and not specific recommendations. No specific targets or position sizes are implied. Past performance does not guarantee future results. Do your own due diligence. Investing is risky and investors can lose most or all their capital. Holding US dollars could be just as risky.

Disclosure: long gold and silver mining shares.