A September 2009 report from Sprott Asset Management, titled “Safe Harbour No More”, provides a US Government Financial Summary and places total US Obligations at ~$120 Trillion!

The Obama administration is projecting $9 Trillion in budget deficits over the next 10 years – which, using history as a guide will probably be closer to double that figure. This staggering projection is due to an entire array of expected new government programs (Health Care Reform, Cap & Trade, etc.) and the fact that federal tax revenues are plummeting.

Joyce warns of bigger GFC (GFC = Global Financial Crisis), a recent article which appeared on an Australian news website, provides a very eye opening perspective of how foreign governments are starting to take notice of the enormous US debt load. The following are key highlights:

• THE Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.
• In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.
• In a Senate estimates hearing on Wednesday night, he asked Treasury secretary Ken Henry what would be the implications of an American debt default for the Australian economy.
• “It is the elephant in the room,” Senator Joyce told The Age. “This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?”
• “Far from turning around the [George] Bush legacy of deficits and debt, [US president Barack] Obama has made it worse. It has got all the hallmarks of a financial collapse about to happen in America.”
• Senator Joyce said investor concerns about the American Government’s ability to fund its deficits were already undermining the role of the US dollar in the international trading and financial system.
• “The US dollar is almost becoming like junk bonds,” he said.

Just to clarify, a high-ranking Australian government official is requesting an open discussion of the impact to Australia upon a US debt default while comparing the US to pre World War II Germany – or more specifically the Weimar Republic whose population was ravaged by hyperinflation. Rarely do we see this type of open press, and while an exhaustive search hasn’t been done, it is doubtful this story would be found easily in US news outlets. To put this in context, Australia ranks last of all the major countries listed which hold US debt. Imagine what is going on behind the scenes in governments of some of the top holders of US debt!

The question is, given the magnitude of the debt load, what incentive does the US government have to execute a standard default and admit it cannot repay? This action, while it *may* preserve the international role of the US Dollar as a world reserve currency, makes debt much more expensive and is an open admission of guilt. The more likely route, given the current actions of the Federal Reserve, is to devalue the US Dollar making outstanding debts cheaper. A $12 Trillion debt today, with a US Dollar that is devalued to $.25 tomorrow, translates to an equivalent debt of $3 Trillion. History tells us that given the fiat nature of the US Dollar, this outcome, often referred to as a silent default, is much more likely.

UPDATE: Audit the Federal Reserve

http://www.auditthefed.com

• H.R. 1207: Federal Reserve Transparency Act of 2009 now has 308 co-sponsors, up from 304 last week.
• S. 604: Federal Reserve Sunshine Act of 2009 now has 30 co-sponsors, flat from 30 last week.

Peter Schiff talks about the US Dollar (10/28/09)

http://www.youtube.com/watch?v=cvmcdzkh9Wg

Gold replacing dollar as world reserve currency? (10/24/09)

http://www.youtube.com/watch?v=bHmmjzyz7-Q

The Dollar is now collapsing – Peter Schiff (10/22/09)

Part 1 – http://www.youtube.com/watch?v=NHyq-I7ep2w
Part 2 – http://www.youtube.com/watch?v=GiIhY98GABQ

10/22/09 Ron Paul at Joint Economic Committee Hearing

http://www.youtube.com/watch?v=ZqMPqjvCtRM

Ron Paul: Senators Jeff Merkley and Bob Corker introduce bill to sabotage the AUDIT THE FED bill (10/22/09)

http://www.youtube.com/watch?v=JJEb4RE8pdw

Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble (10/27/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0kGaq9yTF0A

• Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.
• “We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”
• The dollar has dropped 12 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.
• “The risk is that we are planting the seeds of the next financial crisis,” said Roubini, chairman of New York-based research and advisory service Roubini Global Economics. “This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.”

Got Perfect Credit? You Could Be Charged For It! (10/27/09)

http://wcbstv.com/consumer/credit.card.fees.2.1272124.html

• Loraine Mullen-Kress carries a Bank of America credit card and religiously pays off her balance. “Flawless credit,” she boasted. Yet now, her good credit habits could cost her. Earlier this month Bank of America started notifying customers like Mullen-Kress that they will be charged a new annual fee of $29 to $99.
• “There is a big segment of their population that they will have never made money on, which is people who pay their bills on time every month,” said Ben Woolsey, Director of Consumer Research at CreditCards.com.
• Bank of America said in a statement: “At this point we’re testing the fee on a very small number of accounts and haven’t made any final decisions.” Citigroup is also trying out an annual fee with some card holders, and analysts expect more banks to follow their lead.
• The banks are starting to charge fees to reliable customers in response to a slew of new credit card industry regulations that will limit when banks can hike interest rates. Cardholders who get a new annual fee notice in the mail will be in a no-win situation.
• “I think it is really bad. They’re encouraging you to be a bed creditor or not have good credit,” one New Yorker told CBS 2 HD.

Fund Manager Pellegrini Says Shorting U.S Debt ‘Attractive Bet’ (10/27/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aS3Jyipn3hYo

• Paolo Pellegrini, the former Paulson & Co. hedge-fund manager who helped make more than $3 billion with bets on a U.S. housing crash, said shorting long-term U.S. debt is the “only attractive bet” for investment.
• “I always like to think about assets that are likely to experience a breakdown; the only thing I’m pretty comfortable with right now is U.S. Treasury securities and U.S. agency mortgage-backed securities,” he said in a telephone interview from Beijing today. “I think that those are overpriced so they are attractive shorts.”
• Pellegrini disagrees with the U.S. Federal Reserve’s monetary policy, claiming it is cheating savers to pay for the aftermath of the financial crisis, adding that the devaluation of the dollar is a “particular concern” for investors like himself who hold dollar assets.

Tax refugees staging escape from New York (10/27/09)

http://www.nypost.com/p/news/local/tax_refugees_staging_escape_from_qb4pItQ71UXIc0i6cd3UpK

• New Yorkers are fleeing the state and city in alarming numbers — and costing a fortune in lost tax dollars, a new study shows.
• More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.
• It all adds up to staggering loss in taxable income. During 2006-2007, the “migration flow” out of New York to other states amounted to a loss of $4.3 billion.
• While New York City and the state were the losers, the Sunshine and Garden States were winners. more than 250,000 New Yorkers who lived in and around the city fled to Florida. Another 172,000 city taxpayers ended up in New Jersey.

Treasurys fall as record auction starts (10/26/09)

http://money.cnn.com/2009/10/26/markets/bondcenter/bonds/?postversion=2009102618

• Treasurys fell Monday after the government kicked off a record weekly offering of $123 billion in U.S. debt.
• While demand for U.S. debt has been relatively strong at recent auctions, many traders say the constant supply of new issues could eventually drive prices lower, potentially hindering the government’s ability to finance its operations.

Nelson Says Senate to Extend, Reduce Homebuyer Credit (10/26/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1N3zxvMA1jY

• Senate leaders are negotiating to extend and gradually reduce an $8,000 tax credit for first-time homebuyers through 2010, Senator Bill Nelson of Florida said.
• Lawmakers are under pressure from real estate agents, mortgage brokers and homebuilders to extend the $8,000 credit before it expires Nov. 30.

S&P 500 Overvalued by 40%, Set to Fall, Smithers Says (10/26/09)

http://www.bloomberg.com/apps/news?pid=20601110&sid=aIivrT347BzE

• The U.S. Standard & Poor’s 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.
• “Markets are very vulnerable to an end of quantitative easing,” said Smithers, 72, who recommended avoiding stocks in 2000 just as the U.S. benchmark entered a two-year bear market. “Central banks, they’ve got to stop some time and if that happens everything will come down.”

Gold gives a precious insight into economy (10/24/09)

http://www.telegraph.co.uk/finance/comment/tom-stevenson/6424245/Gold-gives-a-precious-insight-into-economy.html

• Some serious people think that the recent rally in the gold price really is different this time. It’s not like the safe-haven spikes that have pushed the yellow metal through $1,000 an ounce on a handful of recent occasions but each time failed to hold the gain. Traders are pointing to the shallowness of recent pull-backs and the volume of bets buying speculators the right to purchase gold at between $1,100 and $1,200 an ounce.
• What’s happening is that gold is pushing higher in the face of things that history says should push it lower. Gold rises with inflation but it has strengthened in recent months despite easing price pressures and lower inflation expectations. The other tail risk that investors use gold to hedge against – rising defaults and deflation – has also faded into the background.
• If gold is telling us anything today it is that governments – principally America’s and our own – are about to make a mess of the exit from their economic stimulus programmes. Either they are going to tighten too soon, plunging the world into a deflationary ice age, or, more likely, they are going to hang back too long until we are swept away by hyperinflation.
• Printing money remains the time-honoured way out – and it will end as messily as it always has. Hard assets, the king of which is gold, and the shares of companies that produce them are a must for anyone looking to survive this institutionalised generational theft.
• Meanwhile, central banks are seriously underweight when it comes to gold, with China and Japan keeping a tiny fraction of their reserves in gold. Just shifting 10pc of their reserves into gold (Europe’s weighting is 70pc) would involve the purchase of gold equivalent to nearly four times the amount currently held in exchange-traded funds. This would be massively destabilising for the gold market.

Man arrested at B.C. border with $1M (10/24/09)

http://www.calgaryherald.com/news/arrested+border+with/2139684/story.html

• The RCMP are recommending charges after a man was stopped at a B.C. border crossing this month with gold coins and cash worth about $1 million.
• The man, a foreign national who has not been identified, was arrested Oct. 6 when he was entering Canada at the Douglas border crossing in Surrey.
• The gold coins, concealed in plastic vials inside a fireproof safe, were discovered in the man’s vehicle. The cash was found on him and in a laptop bag and duffel bag.
• The suspect–who faces charges under the Proceeds of Crime and Terrorist Financing Acts–was coming from California.
• It is illegal to cross the border with more than $10,000 in undeclared funds. He is in custody under the Immigration and Refugee Protection Act.

Reducing deficit key to U.S. rating: Moody’s (10/22/09)

http://www.reuters.com/article/newsOne/idUSTRE59L1N620091022

• he United States, which posted a record deficit in the last fiscal year, may lose its Aaa-rating if it does not reduce the gap to manageable levels in the next 3-4 years, Moody’s Investors Service said on Thursday.
• The U.S. government posted a deficit of $1.417 trillion in the year ended September 30 as the deep recession and a series of bank rescues cut a gaping hole in its public finances. The White House has forecast deficits of more than $1 trillion through fiscal 2011.
• “The Aaa rating of the U.S. is not guaranteed,” said Steven Hess, Moody’s lead analyst for the United States said in an interview with Reuters Television.
• “So if they don’t get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy.”

Deserted shopping mall bleak symbol of Fed bailout (10/21/09)

http://uk.reuters.com/article/idUSTRE59K01420091021

• The Fed now owns the Crossroads Mall, a sprawling shopping complex at the junction of Interstate highways 244 and 35, complete with an oil well pumping crude in the parking lot — except the Fed does not own the mineral rights.
• The Fed finds itself in the unusual situation of being an Oklahoma City landlord after it lent JPMorgan Chase $29 billion to buy Bear Stearns last year.
• That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties.
• It is hard to be precise because the Fed has not published specifics on what it now owns. The only reason that Crossroads Mall has surfaced is that it went into foreclosure in April.
• Fed Chairman Ben Bernanke has called commercial real estate loans a “serious problem,” and another Fed official has warned they could undermine a hoped-for economic recovery.
• “What the Fed and banks have said they are worried about is a new wave of losses on commercial real estate and here is an example of an early adopter in the Fed’s portfolio,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey.

Highlights from “The International Forecaster” newsletter (10/29/09)

Published and Edited by: Bob Chapman

Check out or Subscribe to The International Forecaster

• Stock funds have had net outflows of capital out of the market for the past six weeks. Insiders at corporations are selling with glee. Thirty times more sell orders than buy orders. Even CALPERS, the world’s fourth largest pension fund has cut equity holdings to 49%, the lowest since 1993. British pensions have the lowest equity holdings in 35 years. This leads us to believe that, due to the character of pension plans, that long-term momentum has changed and will remain more conservative for some time to come. They could cut back much further and we may not see them on the long side in a big way until a bottom is reached and a decisive uptrend is in place. It is no wonder US Treasures are so strong. We know fiduciaries are perpetually wrong, but irrespective the trend for whatever reason is for less participation in the equity market. Maybe for once they are being smart and following the insiders who are selling 30 times more than they are buying. A recent example was the CEO of one of our short recommendations, Robert Toll, of Toll Brothers, a homebuilder, who last month sold 1.6 million shares of his company’s stock. Stock repurchases are off 65% as well.
• This is the first time ever that the S&P 500 has ever rallied 60% in six months. The Dow reached 10,000, when it should not have exceeded 8,500. That shows you the distortion and manipulation going on and points up the now blatant activities of the President’s “Working Group on Financial Markets,” which, of course, operates in secret. As a tribute to this phony rally we have lost 2.5 million jobs over its tenure, when two million are normally created. Are there no professionals out there that get it? They cannot all be that dumb, and they are not that dumb. They are engaging in a conspiracy of silence. They want to be thought well by their peers at the club. They do not want to be ostracized in the Wall Street click. We know we were there for 28 years, of course, always on the outside looking in, permanently known as goldie. If you want to see where the US stock market is eventually going take a look at Japan from 1992 to today. 70% losses and still unable to get out of its own way with an economy still in depression. Incidentally, if the US market copies Japan, which we believe it will, we could easily fall to 3,800 to 4,200 on the Dow and we’ll be very lucky if it holds there. Others whose opinion we respect are looking for 2,800. Wall Street is pricing into the market earnings not only for 2010 but 2011 as well, which is very dangerous in such an environment. We are still in the worst credit crisis since the 1930s.
• Trailing P/E on operating earnings is 27 times. When the Dow was 14,168 in 2007, it was 18.8 times. Reported trailing earnings are 180 times, whereas in 10/07, it was 23.4 times. In 10/87, it was 20.3 times. That should give you something to think about if you are in the market. Normally P/E’s should be 14.5 times. Instead of chasing an overpriced goose you should be participating in the bull markets in gold, silver and commodities. That is where safety, preservation of capital and possible large gains are to be found, both short and long term. Why fiddle with an overextended bear market rally when you can gain in relative safety. Get rid of those bonds, stocks, CDs, cash value life insurance policies and annuities, which are really uninsured and in the stock market waiting to again fall 40% to 70% in value. The crisis is not over; it is still in the beginning.
• We mentioned CALPERS earlier on as a seller of equities. CALPERS is closely watched by other funds and they probably will influence other pension plans to follow. The plan is to become more conservative as the boomer retirement wave hits. Worldwide retirees will jump to 1.3 billion in 2040 from 500 million plus last year. That will be 14% of the total population. It is inevitable that the market will head lower soon. Funds are not dumb, they see the trend as well and they’ll also be sellers. Now the question is when?
• Most professionals, investors and the public still do not understand that we are facing a total breakdown of financial markets, which in turn will take down the economy as well, and will lead to a depression of five years or more. There are no solutions; the problem should have been attended to in 1990. After June of 2002, there was no turning back. The damage inflicted will take years to heal. Those who created the crisis, who are now supposedly trying to fix it, are playing for time. Many people are realizing what the bankers and Wall Street are up too, as bubbles deflate inflation is rising. Zero interest rates certainly do not induce people to save, although savings have risen to more than 4% of GDP, as debt is aggressively being reduced. As long as money and credit is being increased, monetization increases and no purge of the problem takes place, the economy will continue to deteriorate.
• From here on out the Fed isn’t going to get away with anything. Anyone who has been in the market for any length of time knows all of our current problems emanated straight from the fed. It is now obvious that the take down of the dollar is deliberate and there is little effort to save it; just an effort to bring it down slowly and incrementally. There is no question banks will continue to get cheap loans and either deposit the money with the Fed for a 3% gain to buy Treasuries or opportune the markets. An increase in interest rates is a year or more off. Higher rates mean a collapse not only in the economy, but in credit derivatives as well – some $600 billion worth. Besides who wants mortgage rates back up to 6-1/2% to 7%? That would send housing prices lower and unsold inventories higher and that would destroy bank balance sheets. That also means the phantom inventory would become much more visible. That would collapse many banks. We say no change in rates for a year or more. Next enters the dollar carry trade and once it ends the dollar will collapse and that should coincide with the official dollar devaluation, default and bank holiday. It is no wonder foreigners are issuing bonds in US dollars to capture the depreciation. Eventually this will lead to US tariffs on goods and services and trade war. It will also bring an end to the fraud and monetization. Either the US purges their financial system or no one will accept dollars. That is when monetization will finally end.
• We have entered a phase where the Fed and the US Treasury recognize that they can no longer hold up the dollar. They can only impede its downward progress. In that process US and British transnational conglomerates can make even more money by paying for goods in dollars and shorting the dollar simultaneously. This process began at the beginning of the year led by the Chinese and as a result Forex reserves of foreign central banks fell from 64.5% to 62.8% in dollar terms.
• Those events have been accompanied by a flight into other currencies and gold and the use of the dollar in the carry trade. Zero US interest rates will stay at that level indefinitely irrespective of the inflation that will rage in the US and be transported worldwide. Once the dollar falls to long-term support at 71.18 to 72 on the USDX, there will probably be a rally and a retest. Sometime in 2010, 71.18 will be broken to the downside and we will then find out where the real bottom on the dollar will be. It could be 40 to 55, we won’t know until we get there. That is when official devaluation and default will occur, not only in the US dollar but in many other currencies. That will cause financial chaos worldwide and you had better have gold and silver if you want to survive.