12-Oct (USAGOLD) — Minutes from the September 20-21 FOMC meeting show that some participants thought large-scale asset purchases (QE3) should be retained as a more “potent” policy option in support of a stronger recovery. Two members, in fact, favored stronger action.

Two members thought that he current conditions and weak growth outlook “could justify stronger policy action.” They ultimately supported Operation Twist “as it did not rule out additional steps at future meetings.”

[FOMC Minutes]

12-Oct (CNBC) — Euro zone countries will ask banks to accept losses of up to 50 percent on their holdings of Greek debt, officials said on Wednesday, as part of a grand plan to avert a disorderly default and try to end a crisis that threatens the world economy.

Ahead of a make-or-break summit of European leaders on October 23 at which a comprehensive new Franco-German crisis plan is expected to be discussed, four euro zone officials told Reuters that a “haircut” of between 30 and 50 percent for Greece’s private creditors was under consideration.

That is far more than the 21 percent loss they had asked banks, pension funds and other financial institutions to accept in July as part of a second rescue package for Athens.

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12-Oct (Bloomberg) — Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection after failing to pay the debt on a trash-to-energy incinerator.

The council made its 4-3 decision against the advice of a city attorney who said the panel did not follow proper procedure. It was the ninth bankruptcy filing this year by a municipal-bond issuer, according to James Spiotto, a partner at Chapman & Cutler in Chicago who tracks such cases.

“This was a last resort,” Mark D. Schwartz, the council’s Bryn Mawr-based lawyer, said after he faxed the documents to a federal court yesterday. “They’re at their wits’ end.”

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12-Oct (The Wall Street Journal) — As the world awaits the details of the grand plan hatched by Angela Merkel and Nicolas Sarkozy over the weekend, one can’t help but be reminded of the South Sea Bubble. Like the German and French leaders, a famous 1720 stock offering promised investors “an undertaking of great advantage, but nobody to know what it is.” All that we know about the new euro grand plan will be even grander than the July 21 grand plan that didn’t survive 24 hours of market scrutiny. It will aim to address at one stroke the inter-related problems of sovereign debt, bank capital and bank funding—what U.K. Prime Minister David Cameron has dubbed the big bazooka. What could possibly go wrong?

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by Nick Barisheff
12-Oct (GoldSeek) — The recent correction in gold has once again led, to financial commentators warning of a bubble—just as they have incessantly since it first passed $400 an ounce. A bubble usually ends with day after day of speculative higher highs, not corrections like we have just seen or as we saw in August where a $200 fall was followed by the resumption of its decade long rise. That gold continues to climb a wall of worry, and that so many are even calling it a bubble, is actually an extremely bullish indicator since financial bubbles burst only after sustained periods of exuberance. We are far from the days when people lined up for blocks each day to buy gold, as they did in Toronto in 1980.

A simple rebuttal, however, is never enough when discussing gold. It will continue to be subjected to the most aggressive “perception management” assault of any asset class, because it is a direct challenge to all the world’s fiat currencies. Since no paper currency is convertible to gold at this time, this is some challenge. The warnings of bubbles and the many other reasons for not owning gold will continue unabated as gold persists to $10,000 an ounce, or higher. Independent study of the underlying causes of gold’s rising price, in my opinion, is the best way to gain sufficient confidence to buy and hold gold long enough to protect one’s wealth through the turbulent years ahead.

[Source]

JK View: A solid overview of the long term fundamentals underpinning the gold price. Author shows how an “appropriate” perception of the value of gold ought to give any doubter pause. Well worth the read.

12-Oct (Washington Post) — Banks in Europe should temporarily raise their capital buffers to better withstand the effects of debt market turmoil, the president of the European Commission said Wednesday as he presented a broad new crisis plan that was thin on details.

Jose-Manuel Barroso said that until systemically important banks have raised their capital buffers to new standards, they should not be allowed to pay out dividends or bonuses.

The fear gripping the financial sector now is that banks could take big losses on bonds they own from governments with shaky finances, like Greece. That uncertainty is stifling lending — between banks and to the wider economy — which threatens to throw the eurozone into recession.

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12-Oct (USAGOLD) — Gold pushed to a new 3-week highs above 1690.00. While the convincing breach of chart/Fibonacci resistance at 1678.42/1681.68 is encouraging technically, renewed upside momentum has not been forthcoming.

Hope continues to spring eternal with regard to a broad eurozone rescue plan promised by the end of the month. Better than expected industrial production numbers for August helped the cause. The market seems to have largely discounted the Slovakian rejection of the EFSF expansion and the resulting collapse of the government. The euro set new 4-week highs above 1.3800 before retreating into the range, amid expectations that Slovakia will eventually pass the measure. Euro strength comes at the expense of the dollar, with the dollar index falling back below 77.00 on improved risk appetite. The weaker greenback is helping to underpin gold, as are the lingering doubts that a solution for the European problem is at hand.

• UK ILO jobless rate rose to 8.1% in Aug, highest level since 1994, vs 7.9% in Jul.
• France EU harmonized CPI 0.0% m/m in Sep, vs 0.6% in Aug; 2.4% y/y.
• Eurozone industrial production (sa) +1.2% m/m in Aug, above market expectations of -0.8%, vs upward revised 1.1% in Jul; 5.3% y/y.
• India industrial production rose to 4.1% y/y in Aug, vs 3.3% in Jul.
• South Korea unemployment rate (sa) ticked higher to 3.2% in Sep.
• Japan core machinery orders +11.0% m/m in Aug, vs -8.2% in Jul.

11-Oct (Politico) — Is gold the answer?

With the nation smothered in debt, crippled by unemployment and financed by dollar bills backed by nothing more than the faith of the public, some conservatives are calling for a return to the gold standard.

At The Heritage Foundation’s Conference on a Stable Dollar last week, former Bush economic adviser and Federal Reserve Governor Larry Lindsey said the weight of history leaned toward gold.

[source]

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.”

[source]

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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