On June 30, 2009, the US Treasury's Debt To The Penny website listed Treasury funded debt at $US 11.545 TRILLION. This was, of course, a new all time high. Treasury funded debt at the start of this financial year exactly nine months ago was $US 10.024 TRILLION. That means that in the past nine months, the official funded debt of the US Treasury has increased by just over $US 1.52 TRILLION. Annualise that and you get a figure of a bit more than $US 2 TRILLION. That's over ONE year. It is more than four times the biggest previous annual increase in Treasury debt ever recorded. It is also nearly 60 percent of the US government's $US 3.55 TRILLION budget for fiscal 2008-09.
If the increase in Treasury debt DOES exceed $US 2 TRILLION for the fiscal year ending on September 30, 2009 - and it almost certainly will whether the Treasury officially admits it or not - then that figure will be the more than the TOTAL Treasury funded debt as recently as 1985. The year 1985 is highly significant in this context. At the end of September 1985, official Treasury funded debt stood at $US 1.945 TRILLION. Six months earlier in March of that year, the US government officially acknowledged the fact that the US had once again become a NET international debtor - for the first time since before WWI.
When the US became a NET international debtor in 1985, the Treasury's funded debt totalled about $US 1.9 TRILLION. Today, it totals about $US 11.5 TRILLION. That means that Treasury funded debt has increased by just over FIVE HUNDRED PERCENT in the 24 years since the US became a net international debtor. In economic and financial terms, this is as close to a "miracle" as the world has ever seen. There are only two reasons why the US has been allowed to live beyond its international means for so long. First, it is the purveyor of the world's RESERVE currency. Second, it outspends the rest of the world combined in its outlay on its military strength.
On June 29, 1999, US President Bill Clinton said this: "We have now cut up Washington's credit card. By 2015, this country can be entirely out of debt."
In the fiscal year ending on September 30, 2000, the US Treasury almost managed to go through a whole year without adding to their funded debt. The increase in funded debt for fiscal 1999 - 2000 was a mere $US 18 Billion ($US 0.018 TRILLION). For the first time since the 1950s, the US government almost managed a balanced budget less than a decade ago.
Look at it now.
And that brings us back to our headline for this week's edition of our Gold commentary. It would seem that a lot of people do not want to look at the fiscal and financial state of the US government, at least not in public. According to a European "source" who is involved in the plans for the G-8 Heads of State summit convening in Italy on July 8, the US Dollar's status as the "top" global reserve currency is unlikely to be mentioned explicitly in the final communique issued at that Summit.
It is of course a fact that all of these meetings, Heads of State meetings in particular, are scripted beforehand. The communique is written before the meeting is even convened. According to this same "source", "It (the US Dollar) is expected to be discussed remotely (behind very tightly closed doors). But the discussions have not yet reached the level of putting it in writing in the communique."
As you no doubt noticed, Gold fluctuated quite widely this week. A $US 13.30 fall on June 30 was completely reversed on July 1 when Gold rose $US 13.90. And then on July 2, the last trading day before the July 4 holiday weekend, the price reversed once again, falling $US 10.30 to produce a fall for the (shortened) week of exactly $US 10.00. While this was going on, the US Dollar trade-weighted index - the USDX - was fluctuating around the vital 80.00 level. These two financial "indicators" - the $US Gold price and the $US trade-weighted index - are without doubt the two most important financial numbers in the world right now.
But the Heads of State (at least some of the Heads of State) meeting in Italy next week would prefer not to talk about either of them. At least not officially or "in public".
Meanwhile, away from the stage managed get-together of the global political potentates, the world's attention is inexorably homing in on a simple fact. The world is in a recession the like of which it has not experienced since the 1930s. In the "private" sector, a mad scramble is going on to pay back debt and rein in spending. In the "public" sector, the precise opposite is taking place. How can these opposite reactions to the same problem be reconciled?
They cannot be reconciled. Those who cannot "create" money out of thin air cannot go on consuming more than they produce. Those who CAN - DO. And the worse the situation gets, the more "money" they pump into existence. The measure of the US government's desperation is best shown by the figures on US Treasury debt discussed above. The measure of the reluctance of all other governments to try to buck the global system is the fact that the US Dollar has not yet collapsed in ruins, as any non "reserve" currency would long since have done.
Sooner or later, choosing not to talk about this issue will no longer suffice. Money is a vital economic good, and in reality, NO economic good can be created out of thin air. That remains the fundamental issue. And Gold, which cannot be created out of thin air and is a liability of NO-ONE, is not going to go away.
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold retreated to just below the $US 900 level in three moves down. What is being traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 was broken early in April. Over the month of April, a tighter range between $US 870-910 was established. Since the start May, Gold has gone straight up on this chart. That is, until last week. The close below $US 955 on June 9 turned the chart down. With the fall below $US 925 at the beginning of last week, the downswing had retraced about half of the previous rise. Now, with Gold just above $US 930, a close of $US 950 or higher is required to cause an upturn on this chart.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. On February 20, those highs were taken out when Gold hit $US 1000. They were not taken out when Gold hit $US 1000 again in May. Right now, Gold in US Dollar terms is much closer to its all time highs than it is in terms of any other major currency..
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