On Wednesday (July 22), President Obama played host to yet another press conference in his flagging attempts to "sell" his political agenda to the American people. This one was about his health program, the one which was the centrepiece of his election campaign and which is now languishing in Congress. During the course of this press conference, Mr Obama let loose this quite amazing statement. We quote:
"We're seeing numbers - trillions here and trillions there. And so I think legitimately people are saying, 'look, we're in a recession. I'm cutting back, I'm having to give up things - and yet all I see is government spending more and more money'."
Of course, that is EXACTLY what Americans are saying, and they're saying it about far more than Mr Obama's "health plans". As distilled by one US political "pollster" in an interview after Mr Obama's press conference: "Americans are suffering from 'sacrifice overload' where people have seen their tax dollars spent to try to help the economy and have little to show for it yet."
It is a sad fact of life that when you try to "run" a country on bread and circuses as the Imperial Romans did or on the modern equivalent which is the welfare state - it is hard to go on selling tickets to the circus when you run out of bread. All US governments EXCEPT the one in Washington DC have already learned this. And now, Washington itself seems to be starting to suspect it too. The first evidence of this is a proposed "surtax" on high income earning Americans - to which Mr Obama has given his public approval.
It is by now crystal clear to anyone with his or her eyes open that the only part of the US economy which is being "helped" by the "trillions here and trillions there" pumped out by the Obama Administration is Wall Street and the BIG US banks. The only "green shoots" are the ones to be found between the pages of the books of Goldman Sachs et al and on the Dow and its attendant stock indices. The REAL economy is an unrelieved swathe of foreclosures, bankruptcies, job losses and literal breadlines. Even the banks outside the "system" are dying out in ever growing numbers. On Friday, the FDIC had to "put down" seven more "regional banks", including six in Georgia. That brings the total for 2009 to 64. In 2008, there were 25 FDIC bank closures in the entire year, 23 of them taking place after June 30.
And now, on the eve of a crucial summit between US and Chinese officials which takes place on July 27-28 (see the mid July issue - #634 - of The Privateer for much more on this), the US Dollar is on the skids again. Twice this week, (including Friday, July 24) the trade-weighted US Dollar Index (USDX) has closed below the 79.00 level. That is the lowest the USDX has been since September last year at the height of the Lehman Brothers fiasco.
The USDX spent a year below the 80 level in the period between September 2007 and September 2008. In the history of the index, which goes back to the dawn of the global fiat currency era in 1973, the USDX had never stayed below the 80 level for more than a few days at a time. The 80 level was THE support point for the USDX and the most important level of any index in the world. This time, the USDX has been below 80 since July 14. If the Chinese do not get some credible assurances from their US counterparts next week in Washington, it may be a while before we see 80 on the USDX again.
Gold had a good week this week, rising above the $US 950 level for the first time in about six weeks. So far, about half of the current rise merely reflects the once again growing weakness of the US Dollar. Since July 8, when Gold closed below the $US 910 level, it has risen about 4.8 percent. The USDX over the same period is down about 2.6 percent.
Reflect on this. Over the past year or so, the Fed has more than doubled its balance sheet and many $US TRILLIONS have been spent and/or pledged by the US government in a desperate attempt to FAKE prices. On the one hand, we have the oceans of "toxic sludge" which, due to the efforts of the financial powers that be, have NOT been priced on the open market. They are still being carried on the books of the financial institutions at or near the value at which they were issued in the first place. In reality, of course, they would only command a small fraction of that value were they to be offered for sale to individuals who did NOT have the capacity to create the money required to buy them out of thin air. This is deemed "vital" in order to save the "system".
On the opposite side of this coin, we have the precious metals, the once - and future - money of the world. Here, prices have been faked too. But while the prices of the paper "assets" have been held UP - the "prices" of the commodities which have been banned as money have been held DOWN. Nobody in the Obama Administration is lifting a finger to "support" the Gold price, just the opposite is the case.
The strain is starting to tell, though. While individual Americans wilt under the economic and financial burdens now being imposed upon them and as governments at all levels below the Feds in Washington hit the spending wall and start actually CUTTING, Mr Obama proposes to spend yet more "trillions here and trillions there". Once the governments and central banks of the world STOP lending to the US - and they literally cannot afford not to - the jig is well and truly up. Washington DC can then emulate the state governments, notably the one in California - or they can make use of what they have that the states do NOT - a central bank. If they choose this route, it will be outright printing and the US Dollar will dive off a cliff. If they cut spending, it will be a horrendous depression and the entire system will crumble. Either way, the US and the rest of the world is going to need a functioning money. And that's Gold.
(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. Gold went straight up on this chart for six weeks - from the start of May until early June. The close below $US 955 on June 9 turned the chart down. Six weeks later, Gold falling just below the $US 910 level. Last week, we had the upturn we've been waiting for on this chart. The question now is how much longer will the right "shoulder" of the immense reverse head and shoulders on the chart last.
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 (about 5 percent) to its all time highs than it is in terms of any other major currency..
| |||||||||||||||||||||||||||||||||||||||||||||||||