“If money isn’t loosened up, this sucker could go down!"
That quote is attributed to President Bush. It was uttered in the midst of what was described as a "verbal brawl" by the New York Times in the Cabinet Room of the White House on September 25. Mr Bush was there, Mr Obama was there, Mr McCain was there, Mr Paulson was there, the various heads of the relevant Congressional and Senate committees were there. There was no mention of Mr Bernanke being there, but in recent Congressional testimony in concert with Treasury Secretary Paulson, Mr Bernanke hasn't had a lot to say anyway. He appears as a man who cannot believe the situation has reached such an "apex" and has no clue as to what is going on or what to do about it.
Of course, Mr Paulson, being an old Wall Street infighter, has neither doubts nor inhibitions. His "solution" is the time-honoured one, both in Washington DC AND on Wall Street. If there's a problem, the solution is always the same. Throw more "money" at it.
The $US 700 Billion bailout package which is now hitting some fairly large political headwinds now has a name at least. It is being called "TARP" or the "Troubled Asset Relief Program". Mr Paulson doesn't particularly like the "Troubled Asset" part of this new moniker, preferring to refer to "illiquid assets". Ron Paul, pretty well the only sane politician left in Washington, shot this one down very effectively indeed, pointing out that the reason that these "assets" were "illiquid" was probably because they weren't worth anything. Indeed.
This, as we analyse in detail in the Late September issue of The Privateer (Number 613 - published on September 28) - is the crowning crisis of a global monetary system which is based on credit expansion augmented by the ever greater amounts of leverage which have become the signal feature of the system over the past decade. Mr Bush wants the money "loosened up". The problem is, of course, that the "money" has long since become so "loose" that it no longer functions as a viable medium of exchange at all.
That is the issue which we will NEVER see debated in public by those who were at each others' throats in the White House Cabinet room on September 26. It is an issue which will not come up in the first Obama/McCain debate on September 26. It is, nonetheless, the crux of the problem.
The tragedy of the present system is that while the principles of SOUND money (and banking) are known and debated all over the world, notably on the internet, they never see the light in politics. The idea that the only thing necessary to produce prosperity is the ability and willingess to borrow and spend is entrenched in the world today. It would take a cataclysmic financial event to push it off its pedestal.
Something as cataclysmic as the failure of the politicians now wrangling in Washington to come up with yet another "fig leaf" in the form of a yet bigger bailout package? Perhaps. The most beneficial aspect of the battle over the US bailout is that it has awakened a lot of Americans (and non-Americans) to the fact that the debt creation being proposed is to be put on THEIR backs. They don't like it - one little bit. And they are giving their elected representatives an earful.
(Chart appears here in original analysis)
As you can see, the price action on this chart took Gold well below the uptrend line which has supported the entire bull market from its start in 2002. We also have descending lows on the chart - the $US 1000 high set in March and the $US 975 high set in mid July. Gold slid all the way down to the $US 750 level on this chart just two weeks ago. And now has come the HUGE rebound. At its close above $US 905 on September 22, the price action on this chart has now distributed back ABOVE the uptrend line. that is a most positive development.
Compare the chart above ($US 5 x FIVE) to the $US 5 x THREE chart (link appears here in original analysis) we also run. One is back above its uptrend line. The other is bouncing off its uptrend line from below it. The two charts are giving conflicting "readings" of $US Gold at present. To resolve both, Gold is going to have to get back above the $US 1004 spot future closing high it set back in March. We have no doubt that it will, it is just a matter of time.
We began the table below in 2007 and have extended it into 2008, even though Gold in all four currencies in the table remain well above their 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
Two months ago, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. Last week, an even bigger bailout was announced, and the Aussie Dollar Gold price hit a new 2008 and ALL TIME high.
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