Michael F. Cannon
As Jonathan Adler and I explain in this law journal article, and as I explain somewhat more accessibly in this Cato paper, the IRS is trying to tax, borrow, and spend $800 billion in clear violation of federal law and congressional intent.
Yes, you read that right: $800 billion.
View full post on Cato @ Liberty
Gold Crashes Most in 30 Years … What Does It Really Mean?
Gold has fallen off a cliff. It has fallen faster than at any time in the last 30 years.
Zero Hedge notes:
Adding insult to injury, the Shanghai Gold Exchange overnight announced that following the tumbling precious metal prices and limit down drop in early trading, it may raise trading margins for its gold and silver forward contracts.
(Margin calls tend to trigger further selling.)
Some Say It Is a Good Time to Buy
While most financial advisers are screaming “sell!”, there are some well-known contrarians.
For example, Bill Gross still recommends buying gold.
Marc Faber says:
“I love the fact that gold is finally breaking down because that will offer an excellent buying opportunity” …. “The bull market in gold is not completed.”
John Hathaway of Tocqueville Funds (with $10 billion under management) says that the selloff in gold is “a contrarian’s dream scenario”:
The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like a contrarian’s dream scenario to us.
And Zero Hedge notes that – from the perspective of technical analysis – gold is the most oversold it has been in 14 years.
The Bearish Explanation
But why has gold crashed?
•“Optimism that a U.S. recovery will curb the need for stimulus”; and
•“The prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”
Gold decline may have been related to some break in technical levels and the general improvement in global risk appetite.
Business Insider argues:
[Gold's price collapse] vindicates the economic ideas of the economic elites.
To respond to the economic crisis, economists and mainstream policy makers have favored highly unusual policy measures (massive Fed balance sheet expansion, massive stimulus, etc.). These ideas are usually based on years of traditional economic research (Keynesianism, monetarism, etc.).
All of these ideas have been slammed by heterodox types like Austrian economists, who have warned of hyperinflation, and gold going to $10,000.
So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It’s great that our economic elites know what they’re talking about, and have the tools at their disposal to address crises without creating some new catastrophe.
Things aren’t great in the economy, but the collapse/hyperinflation fears haven’t panned out, and the decline in gold is a manifestation of that.
Barry Ritholtz writes:
History shows Gold trades differently than equities. Why? It comes back to those fundamentals.
It has are none.
This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. That led to this heretical advice: Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon. no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias.
I do not want to engage in Goldenfreude — the delight in gold bugs’ collective pain — but I am compelled to point out how basic flaws in their belief system has led them to this place where they are today.
Gold does trade technically, and is especially driven by the collective belief system of the crowd. When that falter, well, you know what happens . . .
The Gold Bugs View
Gold bugs, on the other hand, see things quite differently.
Andrew Maguire says that the crash is solely in the paper gold market … and that there is actually a shortage of physical gold. Many other sources make the same claim.
Egon von Greyerz – founder and managing partner at Matterhorn Asset Management – argues:
They shouldn’t be concerned about the temporary pressure on gold. This decline has nothing to do with the physical market because enormous demand for gold continues.
The paper market in gold is not a real market, and at some point in the near future paper gold holders will wake up and realize they are holding are worthless pieces of paper. This is when the world will witness one of the greatest short squeezes in history as investors panic in to physical and the price of gold explodes to the upside.”
London bullion dealer Sharps Pixley thinks that the crash was largely initiated by a single entity:
The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level… the line in the sand.
Two hours later the initial selling, rumoured to have been routed through Merrill Lynch’s floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market – it had the hallmarks of a concerted ‘short sale’, which by driving prices sharply lower in a display of ‘shock & awe’ – would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called ‘stopped-out’ in market parlance – probably hidden the unimpeachable (?) $1540 level.
The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production – too much for the market to readily absorb, especially with sentiment weak following gold’s non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data.
By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie \; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.
Gold Core’s Mark O’Byrne agrees.
James Rickards thinks the Fed is manipulating the gold market (and every other market).
Former assistant Treasury Secretary Paul Craig Roberts says:
Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate. The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession. Short sales that drive down the price trigger stop-loss orders that automatically lead to individual sales of bullion holdings once their loss limits are reached.
According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. If he doesn’t have the item, he borrows it from someone who does, putting up cash collateral equal to the current market price. Then he sells the item, waits for it to fall in price, buys it back at the lower price and returns it to the owner who returns his collateral. If enough shorts are sold, the result can be to drive down the market price.
Bullion dealer Bill Haynes told kingworldnews.com that last Friday bullion purchasers among the public outpaced sellers by 50 to 1, and that the premiums over the spot price on gold and silver coins are the highest in decades. I myself checked with Gainesville Coins and was told that far more buyers than sellers had responded to the price drop.
In addition to short selling that is clearly intended to drive down the gold price, orchestration is also indicated by the advance announcements this month first from brokerage houses and then from Goldman Sachs that hedge funds and institutional investors would be selling their gold positions.
I see the orchestrated effort to suppress the price of gold and silver as a sign that the authorities are frightened that trouble is brewing that they cannot control unless there is strong confidence in the dollar.
Roberts also says:
This is an orchestration (the smash in gold). It’s been going on now from the beginning of April. Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance. Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold. So what they are trying to do is scare the individual investor out of bullion. Clearly there is something desperate going on….
Indeed, this may tie into the Federal Reserve leak of insider information. Specifically, Roberts writes:
The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.
As Congressman Grayson pointed out in a recent letter, right after the Federal Reserve’s Open Market Committee leaked valuable inside information to big banks, Goldman told its clients:
We recommend initiating a short COMEX gold position ….
Statistics: Posted by DIGGER DAN — Mon Apr 15, 2013 6:59 pm
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The timing couldn’t be any better to ask the question, especially since it follows Burt Abrams’ takedown of Paul Krugman’s “we only owe the national debt to ourselves so it doesn’t matter” argument and the official release of President Obama’s “mind-blowing” budget proposal tomorrow, but here is the answer at least through the end of the federal government’s 2012 fiscal year, depicted graphically:
It turns out that we don’t actually owe at least 34% of the national debt to ourselves, so that would seem to be a major hole in the Nobel Prize winner’s thinking.
More details here, including a neat discussion of the Federal Reserve’s role in lending roughly half of the money the U.S. federal government has borrowed during the last four years, but here’s the bottom line for how the national debt has grown nearly up to the present:
Through 29 March 2013, the halfway point of the U.S. government’s 2013 fiscal year, the total public debt outstanding of the United States has grown to $16.771 trillion – an increase of more than $744 billion in just six months time.
Meanwhile, on 3 April 2013, President Obama pledged to donate an amount equal to 5% of his $33,333 per month salary as President of the United States of America to the U.S. Treasury, which only accepts such voluntary payments to “help reduce the public debt”. Nearly a year earlier, on 10 April 2012, the White House’s official spokesman Jay Carney described such a gesture as a “gimmick” when proposed by opponents of the President’s ongoing calls for higher taxes, which the President later succeeded in obtaining on 3 January 2013.
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California is so beautiful. There was a time when people dreamed of moving there. Now people are trying to get out. At least many of the people in private industry. The Golden State is golden no longer.
The state recently passed a voter approved tax increase of $50 billion over 5 years. It was a huge increase and passed as the “Temporary Taxes to Fund Education” initiative.
But what the initiative is mostly funding are the pensions of California’s army of public employees.
The state made promises it could not keep and now the bill is coming due. And you thought the money was going to the kids. Sucker.
What if a corporation raised $500 million in a securities offering on the premise that the proceeds would go for operating expenses, then disclosed a few months later that $300 million of this amount would instead be used to service a debt that wasn’t disclosed in the offering document?
This would be false advertising, subject to sanction by the Securities and Exchange Commission. Unfortunately, the SEC doesn’t have jurisdiction over state politicians engaging in the same behavior, and, in the case of California, involving sums that are 100 times bigger.
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I was 30 when I began to realize the absolute genius (evil and good) inherent in modern accounting. My whole life I had thought it was just simple inflows and outflows. Boy I had no idea of the level of creativity.
The world is driven by accounting. What’s an asset? What’s a liability? Questions with seemingly easy answers (and they are fundamentally,) but ones which when thrown into the alternate universe of high finance accounting are not.
That is why, as this article reports, the size of the big banks is actually much larger than they report. They are composed partially of “banking dark matter” which though unseen nonetheless increases the mass of the behemoths, bending and warping the economy around them.
(From The New York Times)
Under American accounting rules, banks that trade a lot of derivatives can keep literally trillions of dollars in assets and liabilities off their balance sheets. Since 2009, they have at least been required to make disclosures about how large those amounts are, but the disclosures leave out some things and — amazingly enough — in some cases do not seem to add up.
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Here’s a healthy currency most people have never even heard of
by SIMON BLACK on MARCH 12, 2013
Reporting from Santiago, Chile
There is no such thing as a ‘good’ fiat currency.
Any model in which a tiny banking elite wields dictatorial control over a nation’s unbacked paper money supply is deeply flawed. The concept itself is dangerous, and comparing fiat currencies is like debating which is the ‘least harmful’ poison.
That being said, the world is not yet at a stage where you can walk into a Starbucks and pay for a few lattes with a quarter ounce of silver. Society still functions on paper currency, and if you want to engage in commerce, you have to pick one.
We’ve frequently mentioned several currencies in this column which are better options, i.e. ‘less ugly’, than the others.
The Hong Kong dollar is one example. It’s pegged to the US dollar in a very narrow band, so you’re not taking any risk of it fluctuating. And if the world experiences a deflationary spiral, both the US dollar and Hong Kong dollar will surge… so you’ll be protected.
Yet if the US dollar continues its path to irrelevance, the Hong Kong authorities will likely re-adjust the peg, giving you an instant nominal appreciation.
The Singapore dollar is another option which have been steadily appreciating against other major currencies, backed by a strong economy and a government with zero net debt.
We’ve also talked about the Chilean peso. Like Singapore, Chile has a booming economy with minimal net debt. And the peso has been one of the best performing currencies in the world.
But what most people don’t know is that there’s another ‘currency’ in Chile. It’s called Unidad de Fomento, or UF.
To be clear, UF isn’t an actual currency. There are no UF bills and coins. But you can open a savings account here denominated in UF, and it’s freely interchangeable to pesos.
Why would someone do this? Because UF is a store of value. It constantly adjusts with inflation.
In other words, one UF today will buy you as many loaves of bread and gallons of gasoline that it bought five, ten, fifteen years ago.
This way, you can ensure that the purchasing power of your savings is preserved. And if you have a UF bank account, you can even generate an inflation-adjusted return on top of that.
This is a really innovative idea born from Chile’s own experience with hyperinflation several decades ago. And as I have traveled to over 100 countries, I have seen this concept in very, very few places.
Of course, few banks in the world outside of Chile offer Chilean peso or UF-denominated accounts; and establishing a bank account in Chile is incredibly difficult.
Like many things in this country, banking is very relationship-based. I liken the Chilean banking system to a private club. It’s closed to outsiders, and it’s very difficult to gain entry. But once you’re in, you’re in…
Statistics: Posted by yoda — Tue Mar 12, 2013 12:54 pm
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The consumer is feeling renewed stress. Gas prices are up. Food prices are up. But incomes are stagnant or down generally.
Life for the middle class continues to be tenuous. As the Federal Reserve prints and prints and prints, pushing money into the stock markets and commodity markets, life for much the investor class has stabilized, and in the case of some (think big bankers) the past 4 years have been a time of unprecedented manna.
For those clinging to jobs, trying to put kids through schools with tuitions which continue to rise every year, who are in some cases struggling just to keep the pantry stocked, things have been tough for a long time now. Nothing seems permanent Little feels tangible. Many people remain underwater on their houses. Young people can’t find jobs out of college. Hours are being cut widely thanks to the healthcare experiment being hoisted on the country from Washington DC. Payroll taxes just went back up. It’s no wonder the use of coupons has spiked again.
For middle class America things are not much better than they were 5 years ago. For the bread and butter of the economy, the sarlied breadwinners outside of government and finance, the optimism of past generations, though not gone, is dimmer than in years past. Not only are we mired in a recession, but the rich have gotten richer and the government has gotten larger.
The only solution to this ongoing problem, the alienation and continued marginalization of the middle class, is the reintroduction of sound money. It is clear that the fiat money experiment, initiated by Richard Nixon in 1971 when he took the United States off of the gold standard has failed, for most people. But that’s for another post.
For your information Staples and Chipotle have great coupon deals going right now.
Consumers are clipping coupons at a rate not seen since before the 2007 recession, and that’s a troubling sign, according to Coupons.com CEO Steven Boal.
The website tracks how often people view and print coupons and their redemption rate. Right now, Coupon.com’s Internet Coupon Index, as it’s called, shows a spike in coupon offers and demand.
This pattern is almost identical to the one that played out right before the last major economic downturn. The higher the index value, the more consumers are under economic pressure, Boal told CNBC.com.
“The index tends to run in a range,” he explained. “In September, October, November in 2007, it popped out of its range for the first time… And, for the first time since then, we are seeing a tripping out of the range,”
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The end of the payroll tax cut is hitting those struggling to get by the most. As the world teeters on another leg down in the economy many probably feel that they are already on the down slope.
Last week an internal memo from a Walmart executive said that February month to date sales were “a total disaster.” Walmart’s core customer is feeling pain. Sadly they are likely to feel more.
The world economy is misfiring in a big way right now. Both Europe and Japan are solidly in official recession. It is likely that we are also. The implementation of the Affordable Care Act, aka Obamacare later this year is likely creating a drag also.
I just spoke with a friend who explained that her employer is cutting her hours back so that she didn’t hit the 30 hour threshold for providing healthcare. Now she will probably have to find an additional job or simply do with less income. Either way its a strain. Multiply this out by millions and one can see that this great healthcare experiment may have very real unintended consequences.
Add inflated gasoline and food prices and one has the recipe for a long hot summer.
If gas prices don’t reverse their current trend a serious leg down in the Great Recession is all but guaranteed. But reversing the trend is going to be hard to do with our central bank racing to devalue the dollar.
So settle in folks, it looks like we’ve got another all too “interesting” year in economics and politics ahead.
“It’s a big deal,” says Morgan Housley, a macroeconomic analyst with Motley Fool, an online financial education website. “The biggest impact is on lower-income households since the payroll tax is regressive, only applying to the first $113,000 of income. Wealthier households don’t feel the same pinch because the tax doesn’t hit all of their income. Lower-income households also spend a larger share of their income than wealthier consumers.… Low-income families are in one of the toughest spots they’ve been in since 2009.”
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