The Room – 03/20/2009

Dear Reader,

I worry I shall disappoint you today. After all, how can mere words, pecked out awkwardly on a shaky airplane table, adequately communicate all that has occurred this week?

As regular readers may guess, the plane I am on is taking me to Las Vegas for our sold-out Crisis & Opportunity Summit. While the event was deliberately scheduled to give the Obama administration an opportunity to reveal its cards after having been handed Bush's busted hand, the timing has turned out to be especially propitious, coming as it is at the end of a week that seems to be of some historic significance.

Of course, we wish you were joining us here in Las Vegas -- if you aren't -- but as your correspondent, I will certainly include notes from the event in next week's missive. But that is then, and this is now.

And now, everything is going to hell.

Bernanke's Gamble

Last week I posed the rhetorical question, "Wen is Enough?" in which I mused about the possibility of the Chinese cashing in their dollar chips and turning inward with their investing. Analysts of every stripe pooh-pooh that idea, intoning that the Chinese are now stuck with their dollar reserves, and that, further, the U.S. Treasury market is the only one with sufficient liquidity and safety to meet the needs of cash-rich foreigners.

This week we saw two developments related to this story.

The first was the Treasury International Capital (TIC) report. It is data released by the U.S. Treasury on international purchases and sales of U.S. assets. When foreigners are purring contently, the TIC report confirms that foreign investors are buying up U.S. assets, particularly long-dated Treasuries, as those represent a long-term bet on the U.S. economy and, by extension, the dollar.

Conversely, when foreigners are unsure about the outlook for the U.S., the TIC reflects this by confirming a sell-off of U.S. assets, coupled with a shift in what Treasury buying there is from the more optimistic long-term end of the time scale, to the skittish "ready-to-bolt" short-term end.

Which brings us to the just released January TIC, which was, to use the word selected by one reliable observer, a "disaster."

Our own Bud Conrad, writing with one wing (the other being smashed up in his rather spectacular bicycle accident last week), provides the big picture.

    Every month, the U.S. Treasury releases data on international purchases and sales of U.S. assets. The figures are broken down by category: Treasury bonds, agency bonds, stocks, etc. The January numbers, which just came out, show substantial selling on a net basis.

    Here are some of the highlights:

    1) January saw $148 billion net capital outflows from U.S. securities.

    2) These big capital outflows are hard to square with the dollar's January rally.

    3) Both private and official investors sold long-term U.S. assets. Aside from December, foreign investors haven't been buying long-term U.S. assets since the crisis began.

    4) U.S. investors bought a bunch of foreign bonds. U.S. investors have been selling off foreign bonds and equities throughout the fall, so this marks an interest change. Is it evidence of nervousness about the dollar's future?

    5) Banks stopped piling into U.S. assets.

    6) Private investors reduced their Treasury bill holdings by $44 billion, and banks reduced their net dollar deposits by $119 billion.

    Conclusion: The substantial selling of U.S. securities shows growing concerns about U.S. economic prospects. It is not a good sign for the dollar.

David again.

One of the interesting aspects of the January TIC was the wholesale exit from U.S. agency paper, shown in the chart here.

Given that these agency securities (paper issued by Fannie, Freddie, and others) are for all intents and purposes guaranteed by the U.S. government, the sell-off of these assets is a clear signal that Wen Jiabao and other foreign creditors are now doing more than just talking about their concern over the creditworthiness of the world's largest debtor... they are taking action. Specifically, eschewing agency debt instruments and putting what money they still invest in Treasuries into the short-term stuff that can be dumped in a proverbial heartbeat.

Which brings us to our second story.

As we have previously discussed here and in other Casey Research publications, the dismal January TIC numbers confirm that the foreign buyers so essential to financing the U.S. government's elevated spending needs are falling well short of fulfilling those needs. Couple this with what has to be a sharp fall-off in tax revenues, and the government begins to find itself not just between a rock and a hard place, but between the jaws of a Maxpower Industrial Grade Locking Vise Grip.

And so, this week, the Fed announced it was going to whip up a large batch of fresh cash for the purpose of buying the agency securities and even long-term Treasury bills that no one wants.

Here's a quote from Bloomberg on the baseline story...

March 18 (Bloomberg) -- The Federal Reserve said it will buy $300 billion in Treasury securities and increase its purchases of mortgage and agency debt in an effort to bolster housing and hasten the end of the recession.

"To provide greater support to mortgage lending and housing markets, the committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage- backed securities," the Federal Open Market Committee said in a statement in Washington today. "Moreover, to help improve conditions in private credit markets, the committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."

Chairman Ben S. Bernanke is becoming more aggressive after unemployment climbed to 8.1 percent and economists forecast the economy will shrink through the middle of the year. Fed officials also kept the benchmark interest rate at between zero and 0.25 percent. The central bank also said it will consider expanding the Term Asset-Backed Securities Loan Facility to include "other financial assets," the statement said.

Altogether, this latest explosion in money creation comes to $1.2 trillion -- somewhat more than the Chinese now hold in U.S. dollar-denominated reserves, reserves that have been built up by years of heavy trade and regular (self-serving) investment in support of the U.S. government's endless spending.

And, with the flip of a proverbial switch, the Fed has diluted the dollars that make up those reserves with another cool $1.2 trillion infusion of funny money.

So much for President Obama's strong assurances last week to Wen Jiabao that the U.S. government can be counted on to be a careful shepherd of the dollar.

The dollar failed to concur with Obama's assurances by staging a sharp sell-off and, in the process, sending our favorite yellow metal up handsomely.

And the government isn't done yet.

Earlier this week, we also heard that the Treasury was considering using the Term Asset-Backed Loan Facility (TALF) program to lend up to $1 trillion to their buddies – I mean highly respected financial firms – to buy up a variety of discounted, albeit troubled assets, sweetening the deal up by making the loans "non-recourse." Simply translated, that means "can't lose."

Back in the good old days, these sorts of deals traditionally involved paper bags stuffed with unmarked bills... but that was much more inconvenient. Again, turning to Bloomberg...

As it's currently set up, the TALF may lend as much as $1 trillion to investors from hedge funds to pension funds and insurance companies to buy recently created securities backed by loans for car purchases, college education and real estate. Applications for its first loans are due tomorrow.

Broadening the TALF to include older, illiquid and lower- rated securities could allow the participants in the public-private investment funds to potentially repackage assets and sell them on to a wider group.

So, what does this all mean? Simply that the government is literally willing to do "whatever it takes" in its attempt to return the country to its bubble days, a notion that any sane observer would instantly recognize as a delusional fantasy. But hard reality and vote-getting often don't get along, and so instead we get a government on the determined path of least resistance... unleashing an ever-escalating airlift of dollars.

Sharp Words

And now I feel the need to express thoughts that might strike some as a little "sharp."

This morning, as I was driving to grab a pre-flight coffee, I heard an ad for a local car dealer promoting that – thanks to one of the federal government's many new programs – by purchasing a new car in 2009, you are able to deduct the state and local taxes you would otherwise pay come tax time. This, according to the announcer, would save you $1,500 on a $25,000 purchase. And this, they say, was just one of a number of new federal programs they could help you use to save money on your new car purchase.

For reasons that only a neurologist (or maybe a psychiatrist) could fathom, despite having heard a litany of bailout and stimulus news over the last year, this proved to be the final straw, and instead of just shaking my head in dull resignation, I felt anger.

Sitting with a friend over my coffee a few minutes later, I tried to put the source of my agitation into words. The conversation picks up after I explained to him the message of the commercial.

He: "Dude, I hear ya, and I hate all this stuff, but it's necessary."

I: "Why is it necessary? Who is going to pay the $1,500 that the government doesn't have in the first place? This and all the stimulus programs are just putting the country further and further into debt. And who's going to pay for that debt? Not us, but our children and their children. Sure, we're going to get stuck for more taxes now, but there is no way the Obama administration can cover all this new spending with taxes, and the foreigners aren't going to keep lending to us. So, it comes down to borrowing more and more, beggaring future generations."

"Hey, it wasn't Obama who got us into this mess, man."

"No, it wasn't, and I'm not saying it was. It was Bush and the entire Congress, with some of them, like Barney Frank, more responsible than others. But it's Obama's ball now, and he's calling the shots. And as much as I want to give him the benefit of the doubt, I can't believe what he's doing."

"Well, he's got to do something, man, otherwise the economy would crash and everyone would suffer even more pain."

"Exactly!" I said, maybe even sputtering a bit, "But it is our generation that should take the hit. It is us who should feel the pain of the collapse. We did it to ourselves by standing idly by while the government and its many friends in the banking sector got us into this mess. And don't forget the orgy of spending and personal debt that the population engaged in, encouraged every step of the way by the government's easy-money policies. This all happened on our watch, but instead of taking our medicine, we the people are now encouraging the government in its many efforts to reinflate the bubble, fully aware all we are really doing is trying to shift the mess onto the backs of our children, and their children, and probably their children's children. What a bunch of cowards we are."

(That, of course, is not a perfect recounting of our conversation... I'm pretty sure I interjected one and maybe two "rat bastards" into my diatribe.)

You can call all of this quantitative easing if you wish; I call it institutionalized cowardice walking hand in glove with mob psychology.

Or you can call it "change."

If, however, I were the Chinese, I would call it "enough" and accelerate my plans to swap my dollars for just about any tangible asset at this point. There's no reason for them to stick around to share the pain we have all but guaranteed our children.


While there is a fair amount of debate about the causes of the Great Depression of the 1930s, there is one lesson from that dire circumstance that pretty much everyone agrees on: that the global trade war set off by the U.S. with the Smoot-Hawley Act and its many tariffs only made things significantly worse and helped prolong the depression. Further, everyone agrees that the world, faced with an economic crisis such as that now unfolding, would never make that mistake again.

But then the U.S. government went ahead anyway and slapped our trading partners in the face by including the Buy American provision in the recently passed stimulus package.

Those trading partners are starting to slap back.

First, Mexico announced this week that they would, henceforth, be foisting tariffs on a wide array of U.S.-made products... this in retaliation to the entirely disingenuous refusal by the U.S. government to live up to the terms in the NAFTA agreement whereby Mexican trucks would be allowed to drive on U.S. highways.

"Unsafe!" say the unions and their government backers, supported, oddly, by outraged talk show hosts of a more conservative leaning, whose normal free-market instincts are apparently trumped by xenophobia.

For the record, Mexico is the United States' third largest trading partner, behind Canada and China. Even so, we all know in our heart of hearts that the Mexicans are really just looking for an excuse to smuggle drugs and illegal aliens across the border, so the hell with them! If they want a trade war, bring it on!

Then there are the Chinese, who this week decided to institute a new "Buy Chinese" clause, at least as far as Coca-Cola buying a controlling interest in a successful Chinese juice company is concerned.

Regardless of how this stuff gets started, once it does, it can very quickly snowball, with national sensitivities getting hurt and exporters on both sides of the disputes being the ones taking it in the neck.

Too bad no one in government is actually involved in an export or import business, or any business at all, for that matter. Because then they might understand that these actions have real consequences, today, just as they did in the 1930s.

Now, don't get me wrong. I am not so naïve to think that our trading partners don't try to gain the system in order to help their export companies succeed in U.S. markets. But I am not so blindly nationalistic that I think we don't try to do exactly the same thing.

Even so, for better or worse, thanks to its past success, the U.S. serves as a role model for the rest of the world and, in that regard, is held up to a higher standard. That we are willing to overtly move toward protectionism, whether by reneging on elements of NAFTA or through the Buy American provision, risks setting off a chain reaction of protectionism. Just as did Smoot-Hawley.

But we'd never make that mistake again, right?

Evil Capitalist Polluters!

Despite the quickly mounting deficits caused by stimulus money flying here and there like a St. Patrick's Day snow flurry, the new administration remains fully committed to tackling the all-important topic of global warming.

In fact, if current plans come to fruition, crisis or not, Team Obama may require the evil capitalists that run the few remaining manufacturing concerns to spend up to $2 trillion on "cap and trade" credits.

An excerpt from the Washington Times on the topic...

President Obama's climate plan could cost industry close to $2 trillion, nearly three times the White House's initial estimate of the so-called "cap-and-trade" legislation, according to Senate staffers who were briefed by the White House. A top economic aide to Mr. Obama told a group of Senate staffers last month that the president's climate-change plan would surely raise more than the $646 billion over eight years the White House had estimated publicly, according to multiple a number of staffers who attended the briefing Feb. 26.

"We all looked at each other like, ‘Wow, that's a big number,'" said a top Republican staffer who attended the meeting along with between 50 and 60 other Democratic and Republican congressional aides. The plan seeks to reduce pollution by setting a limit on carbon emissions and allowing businesses and groups to buy allowances, although exact details have not been released.

At the meeting, Jason Furman, a top Obama staffer, estimated that the president's cap-and-trade program could cost up to three times as much as the administration's early estimate of $646 billion over eight years. A study of an earlier cap-and-trade bill co-sponsored by Mr. Obama when he was a senator estimated the cost could top $366 billion a year by 2015. A White House official did not confirm the large estimate, saying only that Obama aides previously had noted that the $646 billion estimate was "conservative."

"Any revenues in excess of the estimate would be rebated to vulnerable consumers, communities and businesses," the official said. The Obama administration has proposed using the majority of the money generated from a cap-and-trade plan to pay for its middle-class tax cuts, while using about $120 billion to invest in renewable-energy projects.

Mr. Obama and congressional Democratic leaders have made passing a climate-change bill a top priority. But Republican leaders and moderate to conservative Democrats have cautioned against levying increased fees on businesses while the economy is still faltering. House Republican leaders blasted the costs in the new estimate. "The last thing we need is a massive tax increase in a recession, but reportedly that's what the White House is offering: up to $1.9 trillion in tax hikes on every single American who drives a car, turns on a light switch or buys a product made in the United States," said Michael Steel, a spokesman for House Minority Leader John A. Boehner. "And since this energy tax won't affect manufacturers in Mexico, India and China, it will do nothing but drive American jobs overseas."

Now, of course, the Washington Times heavily skews Republican and so can be counted on to point dramatically at every Obama misstep, but the fact that anyone is even thinking about foisting another bureaucracy -- and a massive new tax regime -- on struggling businesses is, in my view, just plain insane. And for the record, while businesses do go out of business, they don't pay taxes... that burden falls only to consumers, who ultimately get passed the tab.

Even so, at the rate things are going, by the time the full force of the new taxes are felt in a couple of years, the $650 billion, or $2 trillion -- whichever the number turns out to be -- may amount only to roughly enough in inflation-adjusted dollars to buy a Big Mac, hopefully with fries and a shake.

The Coming Credit Crisis

Oh, you thought we've already had our credit crisis? Sorry, so far we've only seen the first act. As for what's next, this came to me this week from a trusted correspondent who works in the consumer credit arena. It's from the Herald News...

There is a common perception in America that most of us live beyond our means with credit cards financing the party. However, the newly released Federal Reserve Board's Survey of Consumer Finances for 2007 tells a different story. According to their results, it's easy to see that the middle class has been steadily increasing its consumer debt in order to keep up with inflation.

An easy translation of that is the average Joe is using his Visa card to pay the light bill and keep his family fed. He's not partying, but trying to find a way to live from day to day. That news has real repercussions for what the next rollout of bad news and blow to our already battered confidence in the economy is most likely going to be.

The Fed's survey, which is taken from a carefully selected cross-section of 4,500 consumers, shows that since the last reading in 2004, median family incomes dropped slightly for middle income Americans, particularly those headed by a single parent. Average incomes for the wealthiest 10 percent rose substantially, by 8.5 percent.

The mean amount of credit card debt being carried by individuals rose 25 percent, from $3,000 to $7,300, a much faster rate of increase than in previous years. That doesn't sound significant enough until all the pieces start to come together.

The survey noted that the majority of the credit card debt has shifted from stand-alone companies, such as Capital One, to 87.1 percent being held by commercial banks. Those are the very same banks the feds have been working with to ferret out poisonous mortgage debt. Commercial banks that are doing well also made the same decision to not lend short-term consumer debt in large quantities to high-risk people. That means that the debt that is most likely to go unpaid is sitting with the same banks that are already in trouble.

Also, most consumers in the middle income category reported they were saving less than 1 percent, which makes sense if it's already taking a credit card to pay for the basics of life.

So the picture that's forming is an average voter who has a family to support but fewer real dollars in order to accomplish the feat and vital credit sources that have quickly disappeared except for the bill, with no monetary reserve to get through a tight year.

Add on top of that the climbing unemployment rate of this very same group.

It becomes easy to see the very real likelihood that a lot of the retail debt now held by weakened commercial banks will go unpaid. Consumers will choose paying for pretty much anything else before catching up the credit card debt when there isn't enough to cover all of the essentials. A damaged credit report will stop being seen as enough incentive if there's a risk of foreclosure on the house or the phone being disconnected.

Banks will start to make hard decisions about covering the debt owed to the retailers who accepted in good faith the bank-generated credit card. It all starts to roll downhill again.

What's astounding, given that the survey is generated by the feds, is how little Bernanke and his crowd are talking about the coming tidal wave. It can't be that we're still practicing the idea that if we look away long enough it won't all fall apart, yet again.

Fannie Mae, AIG, WaMu and Lehman were apparently not a big enough lesson. One of the more galling aspects is that right now there is not only no significant consumer loan modification being offered in this category but instead, banks are trying to generate bottom line income by charging fees of 25 percent based on a consumer's balance. There was a time when that was called usury in the United States. It starts to beg the question of what real differences exist anymore between the dreaded payday loan and some of the bank-issued credit cards.

It's also possible to conceive that consumers are now paying down debt that consists more of fees owed than actual retail debt. That's where we are at the moment.

If nothing is done, voters can rightfully say that, once again, big business and another pending bailout of some titan of industry on the taxpayer dollar mattered more. After all, the Federal Reserve was the one who gathered the necessary information and then stuck it in a drawer.

David again. In previous financial crises, credit card defaults were the first sign of trouble... this time around, it has largely been mortgages. That's because so many people were so far over their head with their upside-down mortgages and the sheer burden of homeownership that they knew trying to stay in the house, in many cases bought as speculations, was a non-starter. And so, instead they let the mortgages go in record numbers, while hanging on to their lifeline – the credit cards.

That the credit crisis is now intensifying into credit cards is, and should be, deeply concerning. As bad as credit card defaults have gotten, they are getting worse. In fact, this week the news came out that, in February, credit card defaults rose to a 20-year high. Amex and Citigroup (of which you, if you are a U.S. citizen, are now a proud owner) are particularly hard hit, with net charge-off rates rising to 8.7% and 9.6%, respectively.

Now, it is not my role in this world to be a bearer of bad news but rather to make sure that you are fully in the picture. And that picture at this moment is fairly bleak. Okay, it's downright dark. So don't make the mistake of thinking that the worst is behind us... it's not.

That said, the stimulus will almost certainly have some effect once it starts to hit into the economy. But the effect will be short lived and should be treated like a lit firecracker. Kind of exciting with the fuse fizzing away, but hold on too long and the result will be very painful.

"AIG Scum Out of Town!"

That was the epitaph scrawled into the dust-encrusted rear window of an SUV stopped in front of me here in the town that serves as world headquarters of Casey Research. A town that also happens to be the location of a prominent resort built with AIG money.

This sort of outrage over the AIG bonuses was underscored by the CNN reportage I was forced to watch on the large flat-screen TV stuck on the wall in front of the exercise equipment down at the local gym. (I don't have cable at home, and never intend on getting it.)

According to CNN, the citizenry and its elected officials are up in arms because AIG lived up to contractual agreements to pay the executives who continued to work at the firm rather than deserting the sinking ship to look for more permanent employment elsewhere (and, yes, a number of those who got bonuses were helpful in the actual company-sinking).

As I am on a plane, I can't yet say whether or not the government has followed up on its threat to pass legislation, retroactive no less, levying a 90% tax on the bonus recipients, but it won't surprise me if it does.

I'll come back to that momentarily, but am going to juxtapose that story with a second story that caught my attention while attempting to whip my body into shape. The story started with CNN's cameras showing a large ballroom filled beyond capacity with bureaucrats and contractors who were lined up literally down the hallway to get and complete the paperwork needed to get their share of the stimulus funds now being made available. The only catch, according to one interviewee, was that the projects for which they sought free money had to be "shovel ready" -- meaning the recipients had to begin spending the money they received this year. Thus, the ballroom seemed to have the same sort of frenetic energy one might attribute to a mosh pit, with the recipient hopefuls jostling elbow to elbow while clamoring for their share of the quick cash.

Doing my best to test your levels of concentration, I now return to the AIG story. Given that the government provided AIG with over 150 billion dollars in bailout funds, it is a safe assumption that the powers-that-be felt such a massive bailout was necessary. In fact, according to officialdom, it was critical because, should the company fail, it would lead to a real global catastrophe.

Is it too much of a stretch, therefore, to think that the government might actually want the company to succeed in working its way out of the trillions in CDS and other problem derivatives linked to the company? Or that, to accomplish that goal, the company might need to attract or retain executives with a certain skill set?

Now, it is not my intention to be a cheerleader for the morons that brought AIG to its knees in the first place, and I was very much against the bailout in the first place. Rather, I am simply trying to follow some sort of basic logic related to these bonuses.

And it doesn't seem illogical to spend $165 million in bonuses if that raises the odds of recouping a return on the $150 billion already dropped into the company and, more importantly, the hundreds of billions of more potential losses lurking in the AIG closet. (Remember, thanks to the misguided bailout, the government has put you, the taxpayer, in the position of owning 80% of AIG... and virtually all of any further losses they incur.)

So, as distasteful as the whole mess is, I can find some small rationale for the AIG bonuses.

But how, as a taxpayer, am I to rationalize the ballroom full of bureaucrats and their friendly contractor friends, each clamoring for a million here or a million there to fill in some pot holes, build a new bridge, or a knock together a new community center? Why are these things necessary, now of all times, with the country already struggling like Atlas with a groin pull under a world of debt?

The answer, simply, is because the administration believes that this grand experiment will somehow produce an economic miracle, magically reinflating a bubble that easy money and massive spending created in the first place. And Congress, in all its wisdom, and only after great study and deliberation, signed off on the stimulus, just as they did with the Iraq war and the Patriot Act.

Sure the AIG bailout was an outrage, and the bonus money is just an extension of that initial outrage... but so is the stimulus spend-a-thon.

As is the notion that Congress would even consider using tax policy – pay up or go to jail, to be specific – as a punitive measure. By the time this plane lands, I hope against hope that the bill has failed... because if it hasn't, then the government will have discovered a new tool for its large and growing arsenal of coercive powers. While we can't know whom they will turn it against next, you can be assured that, in time, they will.

The sponsor of the bill to use taxes as punishment was Congressman Steve Israel (D-Huntington), who grandly stated upon announcing the legislation...

"American families shouldn't be forced to reward these professional financial failures with extravagant bonuses that could buy fancy cars and yachts," Israel said in a statement. "AIG may not like it, but since they had to come to the federal government for help, the federal government now has a say in how they spend taxpayer money."

I wonder what Rep. Israel would say if someone proposed a bill to tax 90% of the salary of the "professional financial failures" who have led our country into a depression, and who are now throwing taxpayer money around in the trillions, beggaring the populace for generations to come?

[Okay, I am now in Las Vegas and, sure enough, they passed the legislation. Whether you think that AIG or other bailout bonus recipients are greedy and deserve punishment or not, the horrible precedent of punitive taxation aimed at a select group of citizens has now been established.

And there is something else that I heard this morning that is as concerning. It was an overt death threat by New York's Attorney General Cuomo, who has managed to extort the names of all of the employees of Merrill Lynch who, under the terms of their employment contracts, received bonuses over the last year. The company has asked Cuomo not to make those names public over fear for the safety of their employees in this overheated atmosphere. To which Cuomo has replied that he will hold off for a bit, but only to see which employees return the bonuses so he can strike their names off the list. In other words, return your bonuses or else suffer the potentially dire consequences.

We are deep in uncharted water, and it is only going to get deeper from here.]

It Just Doesn't End

Another thing that I just have to comment on this week is that the IMF is seriously considering joining the money-printing game, pumping out Special Drawing Rights that countries around the world can use as money.

As my plane is beginning to descend, and writing about this stuff is beginning to weigh on my good temper, I will leave it to the Telegraph to fill out the story...

The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis.

Alistair Darling and senior figures in the US Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.

Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England's plan to pump extra cash into the UK economy.

If the U.S. dollar manages to come through this crisis and retain its status as the world's reserve currency, I will be very surprised. Maybe, just maybe, whatever is next will be backed by something more tangible than political promises. But that's just a pipe dream.


  • Inflation? What Inflation? Regular readers may remember that last month the inflation numbers came in significantly higher than expected. "A fluke," we were assured. But this week, the CPI from February was released, showing that once again the CPI was up 0.4%, an increase over the 0.3% the prior month. And the highest inflation reading since last July.

    Another anomaly, we are told, caused because gasoline unexpectedly spiked over 8% for the month... but increases were seen in a broad range of other items, including clothes, of all things. Could it be that the China discount, another topic we have mentioned in the past, is starting to fade away right along with our foreign trade? When you consider, as does Jeff Clark in the current edition of BIG GOLD, how strong gold has been over the last year, in the face of a strong dollar and a general absence of inflation – can you imagine how strong it will get when the reverse is true?

    How high could gold go? A lot higher than you might think. To read the current edition of BIG GOLD and find out, risk-free, click this link. The current edition also includes the latest and most comprehensive article I have ever seen on whether the GLD ETF is actually safe... essential reading.
  • Videos? I know this is oldish news, but I think I have finally figured out why President Obama gave Gordon Brown a 12-pack of DVDs as his symbolic gift of friendship when Brown came calling at the White House in one of the first state visits of the Obama administration.

    It struck me that the gift was analogous to the time I forgot to get my wife a birthday present and had to hightail it down to a local spa to buy a day pass complete with relaxing herbal wrappings and a massage. In this case, I'm pretty sure that as Gordon Brown was walking up the front steps, someone slapped a forehead and said something to the effect of, "Oh, crap... we forgot the present. Quick, didn't Bush leave behind some DVDs?"

    I just wish I could have been there to see the expression on Brown's face, or heard what he had to say when he got back to his room.
  • Got Gold? If Not, in Zimbabwe You Starve. This is not a funny story. Rather, it is a video showing how the only thing now standing between many in Zimbabwe and starvation is their ability to pan for gold. There are parts that are hard to watch, but the message – that even in the most dire of situations, gold is still used as money – is a worthwhile one. You can watch the video here.
  • Tea Party. There are increasing signs, overseas and in the U.S., that we are entering a new phase of social unrest. In Cincinnati, a group of citizens outraged over the stimulus staged a tea party. Expect more.
  • Casey Phyles Updates and Info.

    The next SoCal Phyle meeting will take place Saturday, March 28, 2009 from 1:30pm - 5:00pm (or so) at the Baja Cantina, 311 Washington Blvd., Marina Del Rey, CA 90292

    The next Calgary Phyle meeting will be held Tuesday, April 7, at 7:00pmatCadence Coffee, 6407 Bowness Road NW, Calgary, Alberta (All inquiries regarding the Calgary Phyle can be directed to [email protected] )

    People looking to start a group: Daniel in the Lapeer, Yale, Port Huron, MI region. Homer in Winter Park, FL.

And that, dear readers, is it for this week. I am sorry for having gone on so long. Believe it or not, I actually cut out about five pages of notes on other topics I wanted to discuss this week. But for now, I must sign off and turn my attention to the Summit, which starts later today.

As I sign off, I see that the U.S. stock market is down modestly (the DJIA is off 33 points) and gold is hanging tough around $960. I wonder what the government will do next if the stock market takes another big dive from here? I suspect we won't have long to wait to find out.

Until next week, thanks for putting up with my ramblings... and for subscribing to a Casey Research publication.

David Galland
Managing Director
Casey Research, LLC.

Posted 03-20-2009 10:36 PM by David Galland