11-Oct (BBC) — Slovakia’s parliament has voted against measures to bolster the powers of the eurozone bailout fund, seen as vital in combating the bloc’s debt crisis.

The governing coalition had linked the vote to a confidence motion and as a result has effectively been toppled.

Slovakia is the last of the eurozone’s 17 member states to vote on expanding the European Financial Stability Fund.

However, the BBC’s Rob Cameron in Bratislava says a second vote could be held soon and is likely to succeed.

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11-Oct (The Wall Street Journal) — The U.S. economy remains vulnerable to a new downturn, though the probability of a recession in the next six months to a year is unchanged at 40%, according to Moody’s Analytics.

Though the economy has continued to grow, it remains under pressure from Europe’s debt crisis, Washington’s budget debate and the weak housing market, according to the sister company to credit-ratings company Moody’s Investors Service.

“Policymakers on both sides of the Atlantic must intervene,” said Chief Economist Mark Zandi of Moody’s Analytics. “In our baseline outlook, the U.S. will avoid recession only because we expect policymakers to act in the next few months.”

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By Patrick A. Heller
11-Oct (NumisMaster) — “This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”

No, that isn’t me speaking with hyperbole. That is a quote last week from Sir Mervyn King, the governor of the Bank of England. He made this statement after the decision by the Bank’s Monetary Policy Committee to put £75 billion (more than U.S. $115 billion) of newly created money into the British economy. The purpose for inflating the money supply is to stave off another credit crisis and recession in that country.

…It’s one thing for hard-money advocates to shout that the sky is falling. It is entirely different when people like the governor of the Bank of England, the president of the European Commission and an advisor to the IMF state that problems are dire and that immediate action is needed to avoid disaster.

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11-Oct (China Briefing) — In an age when the assets of insolvent Western economies are becoming less reliable and international investors appreciate gold as a safe haven, the Chinese know it is time for them to play a larger role in the global gold market. The Pan Asia Gold Exchange (PAGE) – opened earlier this year allowing gold trade in China’s own local currency RMB – may make China the new epicenter of the global gold market and even trigger a bigger wave of speculative gold buying and selling.

Established on March 31 this year, the PAGE is located in Kunming, the capital city of China’s southwestern Yunnan Province (an area well-known as a major gateway to Southeast Asia). The new gold exchange – which markets itself as China’s “gold supermarket” – will allow individuals to buy physical gold or speculate in gold future contracts through an RMB account with a bank or broker.

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11-Oct (The Wall Street Journal) — Slovakia’s lawmakers were scrambling to vote on a crucial expansion of the euro zone’s bailout fund, but their slow progress Tuesday renewed concerns about prospects for the region, while the European Central Bank’s president warned the crisis has “reached a systemic dimension.”

Slovakia, the poorest country in the bloc, is the last of the 17 euro-zone countries to vote on the €440 billion ($600.34 billion) European Financial Stability Facility, which was agreed upon by euro-zone members in July to address the euro zone’s debt crisis.

After months of painstaking negotiations and political jockeying, the agreement to expand the bailout vehicle, crucial to the euro zone’s strategy for containing the debt crisis, remained up in the air amid a split in Slovak domestic politics.

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11-Oct (MarketWatch) — Gold futures edged lower Tuesday with strength in the U.S. dollar prompting the metal to give back some of the previous session’s gains as traders awaited a vote in Slovakia on changes to the euro zone’s rescue fund.

Gold for December delivery fell $4.70, or 0.3%, to $1,666.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices traded between a low of $1,655.40 and a high of $1,686.70.

“The yellow metal continues to move with the ebb and flow of hope that a real solution to the European debt/banking crisis will be forthcoming,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“Reports that the troika will likely be releasing the next tranche of bailout funds lifted the euro, and tempered some of gold’s recent safe-haven bid in earlier trading.,” he said in emailed comments.

But European Central Bank President Jean-Claude Trichet’s “grim acknowledgment of the mounting systemic risks and worries” about the impending European bailout fund vote in Slovakia served to limit the downside,” he said.

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11-Oct (Financial Times) — China has warned that the US could plunge the global economy into a 1930s-like depression if it passes a bill that aims to punish Beijing for holding down the value of its currency.

With the Senate set to vote on Tuesday on legislation that would impose tariffs on imports from countries that manipulate their exchange rates, China has said that the consequences of such a move could be dire, leading to a trade war.

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11-Oct (USAGOLD) — Gold remains generally contained within the recent range. While chart/Fibonacci resistance at 1678.42/1681.68 was slightly exceeded, the yellow metal continues to move with the ebb and flow of hope that a real solution to the European debt/banking crisis will be forthcoming. Reports that the troika will likely be releasing the next tranche of bailout funds to Greece lifted the euro and tempered some of gold’s recent safe-haven bid in earlier trading. However, Trichet’s grim acknowledgement of the mounting systemic risks and worries about the impending ESFS vote in Slovakia served to limit the downside.

• Canadian housing starts rose to 205.9 in Sep, above market expectations, vs 191.9k in Aug.
• Bank Indonesia unexpectedly cut the overnight policy rate by 25 bps to a record low 6.50%. Signalling possible broader shift in Asian policy.

11-Oct (Reuters) — The euro zone sovereign debt crisis has become systemic and risks to the economy are increasing rapidly with Europe’s banks in the danger zone, European Systemic Risk Board (ESRB) Chairman Jean-Claude Trichet said on Tuesday.

Trichet, who heads the European Central Bank as well as the continent’s super-watchdog on financial stability, said the euro zone’s EFSF bailout fund should be made as flexible as possible, but without involving the ECB in leveraging it.

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PG View: The acknowledgement that the problems in Europe are systemic is bad news to be sure, but the policy response to address those issues may fling Europe out of the frying pan and into the fire. More debt, more currency seems to always be the answer…and that’s supportive of gold.

by Ezra Klein
08-Oct (Washington Post) — Christina Romer had traveled to Chicago to perform an unpleasant task: she needed to scare her new boss. David Axelrod, Barack Obama’s top political adviser, had been very clear about that. He thought the president-elect needed to know exactly what he would be walking into when he took the oath of office in January. But it fell to Romer to deliver the bad news.

So Romer, a preternaturally cheerful economist whose expertise on the Great Depression made her an obvious choice to head the Council of Economic Advisers, gathered her tables and her charts and, on a snowy day in mid-December, sat down to explain to the next President of the United States of America exactly what sort of mess he was inheriting.

Axelrod had warned her against pulling her punches, and so she didn’t. It was not a pleasant presentation to sit through. Afterward, Austan Goolsbee, Obama’s friend from Chicago and Romer’s successor, remarked that “that must be the worst briefing any president-elect has ever had.”

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PG View: This is a very comprehensive look back at US policy responses to the financial crisis that is referenced in the Yglesias piece below. Note the measured presentation of the pros and cons in the section entitled: The Fed’s inflation option.

Video Roundtable – Heavy buying at breaks underpins price. Just released.

Gold Confiscation: Here’s how it could happen and what you can do about it by David L. Ganz, J.D. (Very big response to this article thus far)

Special Offer – Mexican 20 peso (Pre33 item): Beauty and value at a great price! Limited quantity available. We invite you to call your broker before we run out.

New Introductory Information Packet page: Pass along link to friends and family with a potential interest. Much is offered in the way of information we pass along with no strings attached.

Market Note: We just closed one of our best months (September) ever at USAGOLD-Centennial Precious Metals. As the gold and silver price dropped, buyers who were on the sidelines saw a buying opportunity and made purchases they had been delaying for months. The price still looks good and the buying continues at a steady pace. We are getting reports from importers that pre-1933 gold coins out of Europe are drying up causing us to be concerned about the possibility of rising premiums if things don’t loosen up. Silver Eagle demand reportedly running very strong and putting strain on the U.S. mint. Mint reports September the second highest monthly sales on record for silver Eagles. Gold bullion coin supply presently keeping up with demand. Remember, October is the month that stock markets can go bump in the night. Stay alert. . . .

By Matthew Yglesias
11-Oct (ThinkProgress) — My key reading of the Obama administration’s macroeconomic stabilization policy is that they failed to recognize the central role of the Federal Reserve. They reappointed Ben Bernanke, confident that this scholar of the Great Depression would take an activist stance and trusting that his status as a conservative Republican would give him cover to enact such measures. They were slugging in nominating people to serve on the Federal Reserve Board of Governors, and didn’t push for their confirmation when they did make nominees, thinking that these jobs aren’t important. They resolutely failed to speak out about monetary issues, trusting in the old gospel of independent central banking. And in June 2010, they proclaimed “recovery summer” basically assuming that the end of economic contraction and the return of growth guaranteed some kind of “catch-up” pace that would put us on a path back to full employment.

…Their wacky idea was that faced with a deep recession, the government should basically just finance itself by printing money and not bother with the whole taxes thing. The natural counter to that argument was and is that such a policy would be highly inflationary. Personally, I’m old-fashioned, and I think it would be inflationary for the central bank to just print money at random to finance government operations. But by the same token, I have no doubt that a determined central bank can create inflation expectations.

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PG View: I post this piece simply to illustrate that there is an element out there advocating for additional central bank liquidity measures — money printing — to manufacture a higher rate of inflation. They seem to have some faith that that the Fed will be able to effectively manage expectations so that the created inflation wont morph into hyper-inflation.

It’s worth noting that inflation has in fact been running above target in the UK and Europe without any positive impact on their economies. While we don’t have a stated inflation target here in the US, it is widely believed that 2% is what the Fed shoots for. CPI was 3.8% y/y in August and much higher by arguably more accurate alternative calculations. SGS-Alternate CPI actually has inflation at 11.35% through August. So if real inflation is running approximately 3X headline CPI, if you manage the latter by monetary expansion up to 6-8%, we’ve got a real problem on our hands in real-terms.

Yet, if the Fed feels it has run out of options, they may indeed succumb to outside forces demanding greater inflation and spool up the printing presses.

11-Oct (BBC) — International financial inspectors say they have reached agreement with Greece on reforms to put the nation’s troubled economy back on track.

“Economic and financial policies” have been agreed between Greece and the troika of bodies which has been mulling if Athens will get any new loans.

The EU, IMF and European Central Bank say Greece is now likely to get 8bn euros (£7bn; $11bn) more bailout cash.

It came as they said Greece’s fiscal target for 2011 was not achievable.

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PG View: The article seems to ignore the years of outright lies, negotiations, deals and broken promises that proceeded this most recent agreement. Why would anyone expect this agreement to be any different than the previous?

11-Oct (CNBC) — The world’s advanced economies are headed for a second recession, regardless of whether there is further chaos in Europe, Nouriel Roubini told CNBC on Tuesday. The economist who correctly predicted the 2008 financial crisis, but has got some other bearish calls wrong, said his reading of recent data suggested the U.S., euro zone and the UK are already on the verge of falling into a recession in the next quarter or two.

“The question is not whether or if there is going to be a double dip, but whether it’s going to be mild or severe with another financial crisis,” Roubini told CNBC on the sidelines of the World Knowledge Forum in Seoul. “The answer on that depends on the euro zone.”

According to Roubini, a disorderly situation in Europe caused by a sovereign debt default, a banking crisis or an exit of one of the members from the euro zone, would be a shock more severe than the collapse of Lehman Brothers. He added that Europe had to get its act together and “do the right thing” by the G20 meeting in Cannes in the first week of November.

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11-Oct (Bloomberg) — The bond market indicator that has predicted every U.S. recession since 1970 shows that the economy has about a 60 percent chance of contracting within 12 months.

The so-called Treasury yield curve, adjusted for distortions caused by the Federal Reserve’s record low zero to 0.25 percent target interest rate for overnight loans between banks, shows that two-year notes yield 20 basis points, or 0.20 percentage point, less than five-year notes, according to Bank of America Corp. research. The unadjusted gap of 79 basis points at the end of last week indicates the chance of recession at about 15 percent.

Short-term rates have been higher than longer-term yields, or inverted, before each of the seven recessions since 1970. A contraction would make it harder for U.S. President Barack Obama to reduce unemployment, which has held at or above 9 percent every month except two since May 2009, including a reading of 9.1 percent in September. It may also help bolster Treasuries and keep yields near all-time lows.

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10-Oct (The Wall Street Journal) — Recent stock market volatility reminds some analysts and economic historians of the past: the distant past.

Today’s volatility is worse than the 1970s, they say. You have to go back to the 1930s to find volatility as bad as it has been since the late 1990s.

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10-Oct (MarketWatch) — Gold and silver futures rallied Monday, with investors showing strong appetite for commodities and stocks as the U.S. dollar fell sharply against other major currencies.

Gold for December delivery rose $32.80, or 2%, to $1,668.50 an ounce on the Comex division of the New York Mercantile Exchange.

“Gold is remaining bid-up on not just [on] a slightly weaker U.S. dollar, but particularly buoyant physical demand amongst retail investors,” said Ross Norman, chief executive officer at London-based bullion brokers Sharps Pixley.

“Demand in China has been especially strong…”

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Europe Claims to Have a Plan…Again

10-Oct (USAGOLD) — Gold is pressuring the upper end of the recent range in the wake of the latest in a long string of pledges and promise that a plan to save Europe will be forthcoming. The euro rebounded and stocks firmed on improved risk appetite after French President Sarkozy and German Chancellor Merkel vowed a coordinated “master plan” in response to the eurozone debt/banking crisis by the end of the month. Haven’t we heard similar promises of plans in recent months? The plan now seems to be about inserting an adjective ahead of the word “plan” to make the market think that EU policymakers are getting serious. Nonetheless, it probably bought Europe an additional 3-weeks of time.

The latest plan is expected to include bank recapitalization and perhaps a restructuring of Greek debt. “Restructuring” is a polite way of saying Greece will default. Of course the announcement lacked specifics, the most important being, where’s the money going to come from? The EU summit that was scheduled for 17-Oct was pushed back to 23-Oct, presumably to provide an additional week to finalize the details of the plan.

Last week the ECB took a more accommodative stance, indicating that the central bank would initiate a new €40 bln covered bond purchase program. This came on the heels of the Bank of England’s £75 bln expansion of its asset purchase plan. Meanwhile, the Fed remains fully engaged in its own quantitative easing programs. Perhaps therein lies the answer to that all important question about the source of the money…they’re going to print it. BoE governor Mervyn King stated quite succinctly last week, “We’re creating money because there’s not enough money in the economy.” Well that’s not entirely true, there’s adequate money in the system, it’s just all being held in reserves against the latest anticipated catastrophe…a Greek default and potential contagion.

Essentially the new plan is the same plan that has been in place since the financial crisis began 3-years ago. Governments and central banks respond with extraordinarily low interest rates, a flood of liquidity and debt monetization. The argument in favor of this response is that such measures have been successful in staving-off a complete collapse of the global financial system. However, such measures have also resulted in rather unprecedented market volatility and may well be condemning at least the industrialized nations of the West to anemic growth and high unemployment for years to come. It has become a game of lesser-evils, with the West concluding that the Japanese scenario of a lost decade — or more accurately decadeS — is more tolerable than the political mayhem and systemmic risks that would be expected in the event of a true breakdown of the financial system.

The problem is that in responding to a debt crisis by creating more debt and more currency, we get stuck in a vicious cycle of perpetual slow growth and high unemployment, requiring ever-more monetary response. That’s a grim assessment, and the growth risks are already being confirmed by the central banks that recently initiated policy responses. The debt burden increases, currencies are competitively devalued, which in turn creates increased demand for hard assets like gold.

10-Oct (Bloomberg) — European Union President Herman Van Rompuy pushed back an Oct. 17-18 meeting of government leaders to Oct. 23 as the region seeks to stem the Greece- triggered debt crisis.

“This timing will allow to finalize our comprehensive strategy on the euro-area sovereign-debt crisis covering a number of interrelated issues,” Van Rompuy said today in a statement. “Significant progress has been accomplished in the implementation of the July package.”

The EU’s 27 national leaders had been due to meet on Oct. 17 and euro-area leaders planned to gather on Oct. 18.

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10-Oct (Reuters) — The euro rose to its highest in more than a week versus the dollar on Monday, supported by a renewed German and French pledge to unveil a comprehensive plan by the end of the month to rescue the region from a sovereign debt crisis.

However, analysts said the rebound could run out of steam if no concrete euro zone plan emerges in coming weeks, with the risk of renewed bickering between euro zone policymakers seen as a threat to quick decision making.

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10-Oct (Reuters) — Fitch Ratings has downgraded Instituto de Credito Oficial’s (ICO) Long-term Issuer Default Rating (IDR) to ‘AA-’ and affirmed its Short-term IDR at ‘F1+’. The Outlook on the Long-term IDR is Negative.

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09-Oct (Financial Times) — Asian and Middle Eastern central banks and sovereign wealth funds are increasingly anxious about the safety of their investments in the debt of Fannie Mae and Freddie Mac , despite the assurances of US government officials.

Spooked by US political wrangling, major investors including the National Pension Service of Korea and the Kuwait Investment Authority have sold out of their holdings of the debt of the US Treasury-backed housing agencies since the 2008 global financial crisis. Officials from central banks, including the Bank of Japan, say they will be far more cautious in future.

“The GSEs [government sponsored enterprises] are not safe,” said one senior official at an Asian central bank, who added that his institution was reluctant to sell its existing holdings because of fears of spooking the market.

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PG View: Quietly, largely below the radar, US mortgage based financing remains a train-wreck amid a moribund housing market. The Fed is currently supporting the agency mortgage-backed securities market by reinvest principal payments from its holdings of agency debt and agency MBS. However, with the retreat of traditional buyers of such debt, the Fed may be obliged to do more. If there is a QE3, I wouldn’t be surprised at all if the Fed started buying agency debt and agency MBS outright once again.

07-Oct (The Wall Street Journal) — The International Monetary Fund is crafting a proposal to offer new short-term credit lines to governments to prevent the spread of global financial crises, senior IMF and finance officials say.

The program has the tentative backing of key world financial leaders who are expected to approve the new lending tool at the coming meetings of the Group of 20 industrialized and developing economies, according to three senior officials from G-20 countries.

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PG View: Yes! Absolutely! More credit, more debt is the answer to the global debt crisis.

07-Oct (The Wall Street Journal) — U.S. bank exposure to the European debt crisis is estimated at $640 billion, nearly 5% of total U.S. banking assets, according to recent research papers written for Congress.

While U.S. Treasury Secretary Timothy Geithner says the U.S. banking sector’s vulnerability to the euro zone problems is “very limited,” the Congressional Research Service estimate is one of the first public assessments provided by the U.S. government that quantifies the potential risks.

According to two different reports provided to federal lawmakers last month, the debt problems of Greece, Ireland, Portugal, Italy, and Spain constitute a ”serious risk” to the European banking system, particularly German, French, and U.K. banks, which have close ties to U.S. banks. Markets believe there’s a very high likelihood Greece will default in the coming weeks. That could cause a cascade of other crises throughout Europe.

…The estimate doesn’t include U.S. bank exposure to European bank portfolios that include assets in the weak member countries. Also, it doesn’t account for euro-zone assets held by money market, pension, and insurance funds.

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PG View: Geither’s sense of reality seems to have been distorted by all the absolutely huge numbers bandied about in recent years. Does he really view $640 bln is “very limited?” The Congressional Research Service goes on to say that, “depending on the exposure of non-bank financial institutions and exposure through secondary channels, U.S. exposure to Greece and other euro-zone countries could be considerably higher.” What exactly does “considerably higher” mean? Is it twice the $640 bln? More?

07-Oct (Reuters) — Fitch on Friday cut Italy’s sovereign credit rating by one notch and Spain’s by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.

Fitch cut Italy’s rating to A+ from AA- and lowered Spain to AA- from AA+.

It kept both countries, respectively the third and fourth largest in the euro zone, on a negative outlook suggesting further downgrades could come in future.

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07-Oct (The Wall Street Journal) — Author Michael Lewis says the U.S. and many European nations suffered a moral failure that led to economic collapse.

PG View: Supposed first world countries — including the US — hid risk, which was consequently mispriced, leading to crisis.

06-Oct (The Telegraph) — Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy Committee to put £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession.

Economists said the Bank’s decision to resume its quantitative easing [QE], or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.

Sir Mervyn said the Bank had been driven by growing signs of a global economic disaster.

“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”

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