The best "legal" joke we know of is short, sweet, and to the point:
Lawyer to Client: "Justice Has Triumphed!"
Client to Lawyer: "Appeal At Once!!"
Very droll. The facts of the matter have nothing to do with it. If you don't like the results, then just keep on bouncing around inside the system until you get the result you want. If your pockets are deep enough, you will get the result you want eventually.
In any fiat money system, the government with their tame Central Bank to do the blocking and their Treasury to carry the ball, has the deepest pockets of all. In fact, there is no "bottom" to their pockets because they can print any amount of "money" and sell any amount of debt paper. If nobody else wants it, they can just sell it to themselves. They do that every day - every time the Fed "adds reserves" to the system.
The trouble is that there is no more resemblance between rational economics and the present global financial system than there is between justice and the modern legal system. And while it is quite possible to avoid becoming mired in the second, one can't do that with the first. We all live in the global financial system, there's no way out of it.
Speaking of the global financial system, as you undoubtedly know, Gold has had quite a week. It had a $US 19 fall on February 7 followed by a $US 14 rise on February 9 and a $US 14 fall on February 10. The $US 19 fall on February 7 came, not so coincidentally, on the first day of the Treasury's quarterly refunding auctions. It was inaugurated and pushed through in New York, the London AM Gold fix on the day was only $US 1.50 lower than the PM fix on the previous day. These refunding auctions are the LAST which can be done with the Treasury's debt limit at its current level of $US 8.184 TRILLION. The Treasury's Mr Snow is pointing out in a louder and louder voice that the debt limit will be hit at or about "mid February" and that the Treasury will run out of manoeuvre room under the present limit by "mid March".
This sudden Gold sell-off was an obvious ploy to make SURE that the refunding auctions went through without any "gremlins" getting in to mess things up. Mr Greenspan pitched in too, including in his first speech as a "private citizen" the contention that the rising Gold price was merely a result of heightened fears of terrorist attacks.
The re-funding auctions have gone through. The resuscitated 30-year paper was welcomed with open arms by institutions which have been crying out for longer-dated Treasury paper to fund future payments to retirees. On Friday, the yield on the 30-year paper was down to 4.55%, lower than the yield on any of the other paper except the three-month "cash" yield of 4.53%. The US Treasury's yield curve is now perfectly inverted - the longer term the paper, the lower the yield.
The strains get worse. This week, the Commerce Department reported a US trade deficit for 2005 of $US 725.8 Billion. This is, of course, a record. It is up $US 108.2 Billion or 17.5% from 2004's record deficit of $US 617.6 Billion. The US government is predicting a budget deficit for the year ending on September 30, 2006 of $US 423 Billion. With the year not yet five months old, Treasury debt is officially up $US 273 Billion. And don't forget, with the reported "debt to the penny" now well above the debt limit, the reported rises are going to slow down until the Congress either raises the limit or does away with it altogether.
But the MAJOR problem for the global financial system is not government "finances". Government cannot technically "go bankrupt" because they print the stuff in the first place. But the poor unsuspecting public, especially the CONSUMING public, don't have that choice. According to which numbers one consults, consumer spending makes up anything from 68% to 78% of GDP in the US. The wherewithal to keep consuming is on the verge of being tapped out.
US stock markets aren't going up or down much, they are running on the spot. But US stock markets haven't been the major perveyors of the "wealth effect" for US consumers for years now. That role is taken by the US real estate market, and here, the smoke is coming out from under the doors.
In the current Privateer, we report on UK reposession orders having risen by 50% in a year. In the US, the tune is starting to sound similar. Recent reports expect a nationwide surge in mortgage delinquencies - year on year - of 15% in 2006. In Texas, home foreclosures are at a 17 year high - up 27.6% from a year ago. In Las Vegas, 58% of investor-owned condos on the market are empty as are 45% of the houses on the market.
The problem here is that the gulf between the system which prints for a living and those trapped in it, many of whom have to actually produce something for a living, is too big to bridge. More and more money and less and less economic goods are being produced. The goal of those who "run" the system is the same as it has always been, make sure that there is no easy or obvious escape from the system.
Gold (and to a lesser extent Silver) does not provide a complete escape from the "system". But it DOES - and always has - provide a means to protect purchasing power from the deteriorating "money" which is being borrowed into existence to perpetuate the system. As the avenues for borrowing to consume dry up, as the unfunded liabilities mushroom, and as the gap between financial rhetoric and reality becomes too big to bridge, the "appeals" will be resorted to on an ever accelerating basis.
When assertions that economic "growth" is strong are not enough, either redouble them or look for a distraction big enough to short-circuit the critical faculties of most of the observers. When a means for getting outside the system is becoming more attractive - CONTROL ITS PRICE. Supply and demand be damned! There are paper substitutes for Gold (and Silver) which can be manufactured to suit.
Throughout the "fiat currency" era, and for decades before that, there have been concerted attempts to debunk Gold. These have racheted up at every "crisis point". They have "worked" ever since the late 1970s, the last one that failed, and led directly to the great Gold blow off of 1979-80, was the IMF/Treasury Gold auctions of the late 1970s. From then until the present Gold bull got underway in earnest in early 2002, Gold (and Silver) have been firmly kept in the bottle.
Now, the situation is as desperate as it has been since the onset of the Great Depression. Gold's "volatility" has taken a big surge this week. The ride is going to get bumpier, in both directions. But "justice", or reality if you prefer, will triumph in the end, no matter how many appeals remain in the pipeline.