The best measure of the present seriousness of the global FINANCIAL situation is the simple fact that the entire world is VERY worried about the possibility that the Bush Administration might launch air strikes against Iran in the near future and resort to the use of "tactical" NUCLEAR WEAPONS! Only desperate men would even contemplate, let alone let it become the grist for public debate, such a course of action.
This article by Seymour Hersh was posted on the New Yorker website on April 8. It was instantly world news. In fact, it was this story which took most of the "blame" for pushing Gold up to and briefly (in intraday trading) over the $US 600 mark this week. That, along with the Silver price nearing $US 13.00 and oil almost back to $US 70.00 is starting to make for sleepless nights both on Wall Street and at the Treasury and Fed.
Without going into the literal insanity of any such actions by the Bush Administration - see the Mid April Privateer (Number 550 - Published on April 16) - for more on THAT, suffice it to say here that historically, the vast majority of wars have their beginnings in domestic financial/economic imbalances. A government resorts to aggressive war (on any available pretext) when they have run out of wealth to loot inside their own nation and/or as a means of distracting their people from a rapidly worsening financial/economic situation inside their own nation.
The fact that the Bush Administration is actually contemplating the use of nuclear weapons is a stark measure of their desperation. The consequences have to be obvious, even to them. Conversely, the problem of NOT having an external distraction on the go would be to focus the attention of the American people and the rest of the world on the utterly unsustainable debt bohemoth which is all that is left of the US economy.
It would also focus attention on the public flaunting of the laws of the United States which Mr Bush and the members of the Administration have been perpetrating ever since 9/11.
Right now, the world is almost literally holding its breath. There is not a high government official anywhere who does NOT know why the US is talking up an attack on Iran. Every global financial organisation has publicly stated that the debt path which the US is on is totally unsustainable and can only end in a financial meltdown of major proportions and a plummeting US Dollar. Last week, Europe's financial regulators held a "war game" exercise, simulating a continent-wide financial crisis. All know it is coming. No one knows WHEN it will come.
In such circumstances, the surprising thing is not that Gold has reached the $US 600 level - closing at $US 599.50 in Asian trade on April 14. The surprising thing is that Gold in US Dollar terms is still so far below the $US 850 highs it set more than twenty-six years ago.
Please remember that only a month ago, spot future Gold was trading intraday below the $US 535 level. Further, just before Christmas last year, Gold was trading below the $US 500 level. It took Gold from March 2002 to December 2005 to rise the $US 200 from $US 300 to $US 500. The $US 100 rise from $US 500 to $US 600 has taken less than four months. And Silver has almost DOUBLED in price in $US terms since the end of August 2005 with half of that rise coming in the past SIX WEEKS.
Which is the unsustainable trajectory? Is it the acceleration of precious metals prices in terms of US Dollars and all other global paper currencies? Or is it the debt mountain which "underpins" a US Dollar which in turn "underpins" the present global paper money system? Ask yourself that if you find yourself concerned with the increasing speed with which precious metals prices are rising all over the world.
And this concern has certainly not gone away. A glance at the major Gold stock markets will swiftly confirm that. Take a look at the Aussie Gold Index (XGO) chart compiled by The Privateer:
(Chart appeared in original commentary - available to Privateer and Gold This Week - GTW subscribers only)
Local Gold stocks have yet to take out their early February highs, when Gold was nearly $US 30 and more than $A 50 lower than it is now. The "wall of worry" is totally intact. Sadly, the vast majority of Gold "owners" still don't actually own any Gold. They own paper claims to Gold - such as Gold stocks. And in the market for Gold stocks, fear is still totally dominant over greed. As long as the situation remains like this, Gold stocks remain comparatively safe. But NO paper claim to Gold is a substitute for the REAL THING, especially with ALL paper wealth in the dangerous state it is at present.
Mr Bush has gone to Camp David for the Easter weekend. Next week, Chinese President Hu commences his State Visit to the US on April 18 with a dinner held in Washington. No, Not in Washington DC, but in Washington State as the guest of Microsoft Boss Bill Gates. President Hu is scheduled to meet Mr Bush in Washington DC two days later on April 20.
The US sabre rattling at Iran bears a great resemblance to what happened just over three years ago in the lead up to the attack on Iraq. But this time, the stakes are MUCH higher. Mr Bush has called Mr Hersh's article (see link above) pure speculation, but he has said NOTHING to refute it and resolutely refuses to take the pre-emptive use of nuclear weapons by the US off the table. Clearly, we are now in VERY dangerous waters indeed.
If there ever was a textbook example of the indivisability of economics and politics it is the present situation. In a saner age, the links between the two were universally recognised and the study was not of politics or economics, it was of political economy. Now, the world likes to pretend to itself that these are two distinct and separate studies. That pretense is getting harder and harder to maintain. There is evidence of this everywhere, but one of the most telling concrete pieces of it is the acceleration of precious metals prices since late last year.