Month: October 2013

Today’s AM fix was USD 1,311.75, EUR 959.51 and GBP 813.24 per ounce.
Yesterday’s AM fix was USD 1,316.00, EUR 962.27 and GBP 814.05 per ounce.

Gold rose $1.10 or 0.08% yesterday, closing at $1,315.20/oz. Silver climbed $0.31 or 1.42% closing at $21.19. Platinum rose $2.64 or 0.2% to $1,433.74/oz, while palladium increased $8.50 or 1.2% to $747/oz.

Gold hovered in a tight range today between $1,310/oz and $1,330/oz. Traders await the release of U.S. jobs data to gauge the health of the struggling U.S. economy. A poor U.S. nonfarm payrolls number should lead to safe haven buying that could lead to a breach of resistance at $1,330/oz and gold soon testing $1,380/oz.

Gold in US Dollars – 40 Days

A good jobs number could see gold weakening below short term support at $1,310/oz and a possible retrenchment to $1,280/oz.  

The U.S. September jobs data has been postponed for 16 days due to the partial U.S. government shutdown that began on October 1st.  U.S. Fed Bank President of Chicago, Charles Evans, commented in an interview yesterday that the fiscal discord in D.C. will probably delay the decrease in the Fed’s monthly bond buying which is gold positive.

The market continues to digest the continuing fall in the holdings of the biggest gold exchange-traded-holdings fund dropped the most in 15 weeks as gold flows from London to Switzerland and on to Asia. Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 10.51 tonnes to 871.72 tonnes on Monday — its biggest fall since early July. It is believed that this gold is flowing East to willing and eager buyers in China particularly.

Gold bullion dealers in India are struggling to get gold bullion and are paying record premiums just ahead of the peak festival season next month.

Marc Faber the author of “The Gloom & Doom Report” was interviewed on CNBC’s Squawk Box today.

Faber commented, “The question is not ‘tapering’, the question is at what point will they increase the asset purchases to say $150 billion, $200 billion, or a trillion dollars a month.”

Faber was one of the few investment advisers to clearly warn of the coming global financial and economic crisis in the months and years pre-Lehman. His company Marc Faber Limited provides investment advisory services to financial institutions, corporate clients, family offices and high net worth individuals around the world.

Mark Faber 

‘QE-4-EVA’ is here to stay, as Faber laid out “every government program that is introduced under urgency and as a temporary measure is always permanent.”

Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber trumpets, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.”

There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

Last April, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50% of their total wealth.”

In this morning’s Squawk  Box appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to the massive size of the global derivatives market which is now worth over an incredible $700 trillion.

He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.” He wisely said that, “I advise everyone to have some gold.”

Gold in US Dollars – 5 Years

Faber has warned in recent months that there could be a flight out of cash and overvalued bonds and into equities and gold.

In January, in response to a question from Yale University’s Robert Shiller querying the recommendation to hold gold, Faber said: “I’m prepared to make a bet, you keep yourU.S. dollars and I’ll keep my gold, we’ll see which one goes to zero first.”

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K5XJBH6H1Bs/story01.htm GoldCore

Authored by Eric Sprott of Sprott Global Resources,

Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.¹ In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.² Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.³

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.

TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES

Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.⁵ Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.⁶ Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).⁷ All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.

FIGURE 1:TONNES OF GOLD IN ETFS

Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.

Regards,

Eric Sprott

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Sc2zzCdKzLk/story01.htm Tyler Durden

Authored by Eric Sprott of Sprott Global Resources,

Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.¹ In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.² Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.³

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.

TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES

Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.⁵ Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.⁶ Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).⁷ All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.

FIGURE 1:TONNES OF GOLD IN ETFS

Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.

Regards,

Eric Sprott

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Sc2zzCdKzLk/story01.htm Tyler Durden

The dismal news keeps coming for the Fukushima nuclear power facility. According to NHK World, TEPCO is admitting to detecting radioactive cesium about one kilometer off shore. While the level is low, it is the secoond time radioactive substances have been found that far offshore and it is believed to be from wastewater leaking out with the groundwater. The company, reassuringly, says the leak poses no environmental risk… As if that was not enough, Bloomberg reports TEPCO also found high levels of radiation in the drainage ditches and wells at the site. Of course, this will likely be met with cries of delight by Abe who will “need to build a bigger wall” to contain the leaks and thus create a Keynesian utopia from the ‘broken nuclear plant fallacy’ that is ongoing.

 

Via NHK World,

Tokyo Electric Power Company says a very small amount of radioactive cesium has been detected about one kilometer off the damaged Fukushima Daiichi nuclear plant it operates.

 

TEPCO has been analyzing seawater taken at 5 locations outside the plant’s harbor. This is to monitor the spread of radioactive substances in wastewater that’s believed to be seeping out with groundwater.

 

A sample taken last Friday about one kilometer offshore was found to contain 1.6 becquerels of cesium-137 per liter.

 

The level is far below the 90 becquerels-per-liter limit for releasing cesium-137 into the sea. But it is the second time the substance has been detected at this location since monitoring began in August. The previous finding was on October 8th.

 

TEPCO says it does not know why cesium has been found at that specific spot. But the company says it poses no environmental risk as the level is near the minimum detection threshold. It adds that hardly any cesium is being found elsewhere in the sea outside of the port.

 

Via Bloomberg,

Co. found 59,000 Bq/L of beta radiation levels from water taken yesterday at B-2 drainage ditch at Fukushima Dai-Ichi plant, higher than previous record of 34,000 Bq/L in Oct. 17 sample, according to an e-mailed statement from the utility.

 

Co. detects 350,000 Bq/L of tritium radiation at monitoring well “No. 1-12” near turbine buildings, according to a separate statement

 

First time to take sample from monitoring well “No.  1-12”

 

Co. found record 790,000 Bq/L of tritium radiation    near H4 storage tank area on Oct. 17

 

 

We just can’t wait to see the Olympic sailing events with boats whose hulls are lead-shielded…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YNfx2pJBb0E/story01.htm Tyler Durden

Originally posted at Python Sweetness blog,

This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $460m trading loss due to a software bug that struck late last year, effectively bankrupting the company.

The tale has all the hallmarks of technical debt in a huge, unmaintained, bitrotten codebase (the bug itself due to code that hadn’t been used for almost 9 years), and a really poor, undisciplined dev-ops story.

Highlights:

To enable its customers’ participation in the Retail Liquidity Program (“RLP”) at the New York Stock Exchange,5 which was scheduled to commence on August 1, 2012, Knight made a number of changes to its systems and software code related to its order handling processes. These changes included developing and deploying new software code in SMARS. SMARS is an automated, high speed, algorithmic router that sends orders into the market for execution. A core function of SMARS is to receive orders passed from other components of Knight’s trading platform (“parent” orders) and then, as needed based on the available liquidity, send one or more representative (or “child”) orders to external venues for execution.

 

13. Upon deployment, the new RLP code in SMARS was intended to replace unused code in the relevant portion of the order router. This unused code previously had been used for functionality called “Power Peg,” which Knight had discontinued using many years earlier. Despite the lack of use, the Power Peg functionality remained present and callable at the time of the RLP deployment. The new RLP code also repurposed a flag that was formerly used to activate the Power Peg code. Knight intended to delete the Power Peg code so that when this flag was set to “yes,” the new RLP functionality—rather than Power Peg—would be engaged.

 

14. When Knight used the Power Peg code previously, as child orders were executed, a cumulative quantity function counted the number of shares of the parent order that had been executed. This feature instructed the code to stop routing child orders after the parent order had been filled completely. In 2003, Knight ceased using the Power Peg functionality. In 2005, Knight moved the tracking of cumulative shares function in the Power Peg code to an earlier point in the SMARS code sequence. Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called.

 

15. Beginning on July 27, 2012, Knight deployed the new RLP code in SMARS in stages by placing it on a limited number of servers in SMARS on successive days. During the deployment of the new code, however, one of Knight’s technicians did not copy the new code to one of the eight SMARS computer servers. Knight did not have a second technician review this deployment and no one at Knight realized that the Power Peg code had not been removed from the eighth server, nor the new RLP code added. Knight had no written procedures that required such a review.

 

16. On August 1, Knight received orders from broker-dealers whose customers were eligible to participate in the RLP. The seven servers that received the new code processed these orders correctly. However, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server. As a result, this server began sending child orders to certain trading centers for execution.

 

19. On August 1, Knight also received orders eligible for the RLP but that were designated for pre-market trading.6 SMARS processed these orders and, beginning at approximately 8:01 a.m. ET, an internal system at Knight generated automated e-mail messages (called “BNET rejects”) that referenced SMARS and identified an error described as “Power Peg disabled.” Knight’s system sent 97 of these e-mail messages to a group of Knight personnel before the 9:30 a.m. market open. Knight did not design these types of messages to be system alerts, and Knight personnel generally did not review them when they were received

The remainder of the document is definitely worth a read, but importantly recommends new human processes to avoid a similar tragedy. None of the ops failures leading to the bug were related to humans, but rather, due to most likely horrible deployment scripts and woeful production monitoring. What kind of cowboy shop doesn’t even have monitoring to ensure a cluster is running a consistent software release!? Not to mention deployment scripts that check return codes..

We can also only hope that references to "written test procedures" for the unused code refer to systematic tests, as opposed to a 10 year old wiki page.

The best part is the fine: $12m, despite the resulting audit also revealing that the system was systematically sending naked shorts.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/P4f-Ivzph7Y/story01.htm Tyler Durden

“Don’t Stop Believing…”

 

 

via @Not_Jim_Cramer

 

“some escape music for ya…”

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Dyv67YRXEoA/story01.htm Tyler Durden

“Don’t Stop Believing…”

 

 

via @Not_Jim_Cramer

 

“some escape music for ya…”

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Dyv67YRXEoA/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

Did you know that the U.S. national debt has increased by more than a trillion dollars in just over 12 months?  On September 30th, 2012 the U.S. national debt was sitting at $16,066,241,407,385.89.  Today, it is up to $17,075,590,107,963.57.  These numbers come directly from official U.S. government websites and can easily be verified.  For a long time the national debt was stuck at just less than 16.7 trillion dollars because of the debt ceiling fight, but now that the debt ceiling crisis has been delayed for a few months the national debt is soaring once again.  In fact, just one day after the deal in Congress was reached, the U.S. national debt rose by an astounding 328 billion dollars.  In the blink of an eye we shattered the 17 trillion dollar mark with no end in sight.  We are stealing about $100,000,000 from our children and our grandchildren every single hour of every single day.  This goes on 24 hours a day, month after month, year after year without any interruption.

Over the past five years, the U.S. government has been on the greatest debt binge in history.  Unfortunately, most Americans don't realize just how bad things have gotten because the true budget deficit numbers are not reported on the news.  The following is where the U.S. national debt has been on September 30th during the five years previous to this one…

09/30/2012: $16,066,241,407,385.89

09/30/2011: $14,790,340,328,557.15

09/30/2010: $13,561,623,030,891.79

09/30/2009: $ 11,909,829,003,511.75

09/30/2008: $10,024,724,896,912.49

The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined.

Of course all of the blame can't be placed at the feet of Obama.  During the last two elections the American people have given the Republicans a solid majority in the U.S. House of Representatives, and the government cannot spent a single penny without their approval.

Unfortunately, House Speaker John Boehner and the Republicans that are allied with him have repeatedly turned their backs on the people that gave the Republicans the majority and they have authorized trillions of dollars of new debt which will be passed on to future generations of Americans…

Since John Boehner became speaker of the U.S. House of Representatives on Jan. 5, 2011, the debt of the federal government has increased by $3,064,063,380,067.72. That is more than the total federal debt accumulated in the first 200 years of the U.S. Congress–during the terms of the first 48 speakers of the House.

In fact, if all of that debt had been given directly to the American people, every household in America would have been able to buy a new truck…

The $26,722 in new debt per household accumulated under Speaker Boehner would have been more than enough to buy every household in the United States a minivan or pickup truck–or to pay three years of in-state tuition (not counting room and board) at the typical state college.

Sometimes we forget just how much money a trillion dollars is.  In a previous article, I included some illustrations that I believe are helpful…

-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

We are doing the exact same thing that Greece did, only on a much larger scale.  What we are doing is not even close to sustainable, and it will inevitably end very, very badly.  The following is what Michael Pento, the president of Pento Portfolio Strategies, told RT the other day…

"That $17 trillion everybody says its 107 percent of GDP, that’s true. But who really cares about the percentage of GDP? It’s the percentage of the debt as a percentage of the revenue – its 700 percent of our revenue. Deficits are growing at 30 percent of our revenue every year added to the deficits we have already. So it’s unsustainable. What is going to happen eventually – a currency and bond market collapse! And it’s not going out 20 years, as I also heard someone mention. In 2016 we’ll probably be spending 40 percent of all of our revenue just to service our debt. That is what the interest payments will equal."

The U.S. debt situation is so bad that even the Prime Minister of Cyprus is scolding us…

"The U.S. has been fortunate in the sense that it’s like a bank, it prints the money that other people accept. So you can live beyond your means over an extended period of time without being punished by the market."

Unfortunately, we will not be able to live way beyond our means forever.  Reality is going to catch up with us at some point.

Right now, the rest of the world is lending us giant mountains of money at interest rates that are far below the real rate of inflation.  This is extremely irrational behavior, and this state of affairs will probably not last too much longer.

But if interest rates go up, it will absolutely cripple the U.S. economy.  For much more on this, please see this article.

And what would make things much, much worse is if the rest of the globe starts moving away from using the U.S. dollar.  At the moment, the U.S. dollar is the de facto reserve currency of the planet and this creates a tremendous demand for U.S. dollars and U.S. debt.

If that changes, it will be absolutely catastrophic for the United States, and unfortunately there are already lots of signs that this is already starting to happen.  I wro
te about this in my recent article entitled "9 Signs That China Is Making A Move Against The U.S. Dollar".

But don't just take my word for it.  Just a couple of days ago a major U.K. newspaper came to the same conclusions…

China has overtaken the US as the world’s largest oil importer and goods trading nation. Over the next five years, it will surpass the rest of the world combined in its consumption of base metals.

 

Given the scale of the country’s consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources such as crude oil and iron ore.

 

The debt ceiling farce in Washington and China’s growing reluctance to continue underwriting the US economy by buying up its bonds and adding to America’s near $17 trillion (£10.5 trillion) debt mountain suggests that this tectonic shift in the global trade system could be just around the corner.

So what will happen when the rest of the world decides that they don't need to use our dollars or buy our debt any longer?

At that point the consequences of decades of incredibly foolish decisions will result in an avalanche of economic pain that the American people are not prepared for.

Earlier today, I came across a photograph that perfectly captures what America is heading for.  The following photo of Mt. Rushmore crying has not been photoshopped.  It was taken by Megan Ahrens and it was posted on the Tea Party Command Center.  If George Washington was alive today, this is probably exactly how he would feel about the nation that he helped establish…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/DabjBFyQDFU/story01.htm Tyler Durden

A mere 24 hours before the US (at least according to Jack Lew, who, as some of you may have known, is the Secretary of the Treasury of the United States of America) was going to run out of money and default on its obligations (the Lew-styled “catastrophe”, which according to the great and the good would once again “bring the financial system to its knees” — how many MORE times are we going to have to listen to that, I wonder?), the S&P 500 was trading exactly 2.30% from its all-time high.

Sound like anybody was worried about financial Armageddon to you, dear reader? Not to me, either, but here’s the thing:

The danger WAS very real, as a default by the US on its debt obligations would have gone to the very heart of the “plumbing” that underlies financial markets and caused havoc in the repo market and all kinds of problems with collateral (or at least, what little collateral is allowed amongst market participants once central banks have hoovered up their ever-expanding allotments).

The key clue passed most people by a week ago; but it came from, of all places, Hong Kong:

(FT): Hong Kong’s stock exchange decided the possibility of a US default had made some types of short-term Treasury bonds more risky, prompting it to force traders using the securities as collateral to provide extra backstops….

 

It came as the Asia Securities Industry & Financial Markets Association (Asifma), which represents banks, brokers and asset managers in the region, warned that any announcement by the US Treasury in advance of a default must arrive before the opening of the day’s trading in Asia to avoid “chaos”.

 

Japan’s clearing house, the Japan Securities Clearing Corporation (JSCC), said it was in “intensive discussions” to prepare for “anything that might happen”.

 

Hong Kong Exchanges & Clearing (HKEx) said on Thursday it had taken two measures designed to reflect the increased difficulty of valuing certain short-term US Treasuries amid the debt impasse.

 

First, its clearing house would apply an increased “haircut” to its valuation of US Treasuries held as collateral against futures trades. For bonds held with maturity of less than one year, that would be raised from 1 per cent to 3 per cent, effective immediately, HKEx said in a circular to members.

 

“This new haircut shall be applied on a daily basis to determine the value of the US Treasuries allowed to be used as cover for the margin requirements of HKCC [Hong Kong Clearing Corporation] participants,” HKEx said.

 

“Participants should make necessary funding arrangements to cover any shortfall to their margin requirements resulting from the increase in the US Treasuries haircut.”

Anyone posting US Treasuries with less than a year to maturity as collateral, would need to come up with three times their current posted margin.

Not good. Not good at all. The amount of liquidity this would suck out of a fragile market would be catastrophic very bad indeed, and any forced selling on behalf of those unable to post the additional collateral would be a catastrophe major problem, leading to falling prices and spiking rates — neither of which are allowed anymore. Now, if HKEx’s move had become fashionable around the world (and it’s safe to say that exchanges are very much pack animals), it would have been quite bad a catastrophe.

After a very subdued reaction to the can being kicked down the road until February debt ceiling being agreed, something rather strange happened on Thursday. See if you can identify at what point in the day it occurred:

(I should point out that the yellow overlay of the gold price looks green where it sits on top of the blue DXY chart. There are only two variables in this chart, the yellow gold price and the blue US dollar price.)

Now, there was already a clue as to what this event was, hidden away in an earlier chart, but (cue drum roll) the catalyst for the dollar’s sudden drop and the sharp spike in the price of gold waaaaaaaaaaaas… THIS:

(Reuters): Chinese rating agency Dagong has downgraded the United States to A- from A and maintained a negative outlook on the sovereign’s credit.

 

The agency suggested that, while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged.

 

“Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” Dagong said in a press release.

Now those are the straight facts of the issue, but contained within the rest of what was a very short article are three fascinating sentences that speak to the very crux of the problem as things stand today. The first two constituted the very next paragraph:

(Reuters): Dagong’s ratings are hardly followed outside of China. The agency also classifies most countries it follows very differently from major agencies such as Moody’s, Standard & Poor’s and Fitch.

Absolutely correct. Dagong’s ratings are seen as something of a joke and very much inferior in nature to the Big Three — a poor man’s Egan Jones, if you will.

…So here’s where we get to the nub (finally!) of this week’s philosophical wanderings.

The question I posed, all those charts ago, was this:

If something bad happens, but nobody reacts badly to it, did nothing bad happen?

Well, with each successfully navigated new crisis, the reaction of the market the next time a crisis flares up becomes more muted. We’ve seen the spectre of a Lehman-style collapse dealt with, and now the phrase “… could bring the global financial system to its knees…” is shrugged off with alacrity.

We’ve seen the spectre of a European fracture, a Grexit, a Spexit, and the end of the euro taken off the table by determined governments and central bankers; and now, each fresh outbreak of the European crisis is greeted with apathy and ennui. (I wonder if the French have a word for that.)

And now we’ve seen the extent of the reaction to the US debt-ceiling debacle the second time around. I would describe it as “quizzical interest” at best.

Why?

Because the Nannycrats are continually telling us that everything will be OK, that we shouldn’t worry about things and ought instead to just Keep Calm and Carry On.

How bad has it gotten? Well, amidst the “hoo-ha on the Hill” recently, we saw one of the most bizarre things I’ve witnessed during the mayhem of recent years: Barack Obama’s telling Wall Street that they SHOULD worry

…

Barack, let me explain something to you.

The reason Wall Street WASN’T worrying is that you and Be
rnanke and Geithner and Paulson (not you, John — Hank) and Yellen and the rest of the Crazy Crew have gone out of your way for five years to make absolutely certain that nothing bad ever happens again. Ever. Why the hell WOULD they worry?

 

It’s YOUR fault that they’re not. You just can’t have it both ways.

That’s what moral hazard looks like, I’m afraid…

Read Grant Williams’ full letter below…

Ttmygh 14 October 2013

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/u9cVUG__XW4/story01.htm Tyler Durden

Last week Mike Maloney exposed the "biggest scam in the history of mankind" in 7 easy steps in his latest presentation. As Mike explains, most people can feel deep down that something isn't quite right with the world economy, but few know what it is. Gone are the days where a family can survive on just one paycheck…every day it seems that things are more and more out of control, yet only one in a million understand why. Here is the simple infographic to explain the grift…

 

(click image for massive legible version)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MDlwIWDD-h8/story01.htm Tyler Durden