The following two videos from Max Keiser and James Turk provide valuable perspective from 18th century France, applicable to today’s global economy awash in debt and paper. While familiar with both of these historical instances of fiat inflation, I found the videos extremely interesting and entertaining.

As the adage goes, “Those who cannot remember the past are condemned to repeat it.” (George Santayana)

Part 1: John Law and the Mississippi Bubble

Part 2: Assignats

Andrew Dickson White ends his classic historical essay on hyperinflation, “Fiat Money Inflation in France,” with one of the more famous lines in economic literature: “There is a lesson in all this which it behooves every thinking man to ponder.”

Our own Michael J. Kosares warns that this lesson — that there is a connection between government over-issuance of paper money, inflation and the destruction of middle-class savings — has been so routinely ignored in the modern era that enlightened savers the world over wonder if public officials will ever learn it.

The same folly of 18th century France has been repeated time and time again:

1. The Greenback and Confederate states inflations in the United States during and after the Civil War between the States;

2. A rash of national hyperinflations after World War I including Russia (1921-1924, 213 percent annualized); Poland (1922-1924, 275 percent annualized); Austria (1921-1922, 134 percent annualized); Hungary (1922-24, 98 percent annualized) and the most famous of them all, the Nightmare German Inflation (1920-1923, 3.25 million percent annualized);

3. Another round of episodes during and after World War II including Greece (1943-1944, 8.55 billion percent annualized); Hungary (1945-1946, 4.19 quintillion percent annualized) and China (1949-1950, unmeasured);

4. A rash of post World War II episodes including two in Argentina, and one each in Brazil, Chile, Nicaragua, Bolivia, Peru, Poland, Russia/Ukraine and Yugoslavia/Serbia (1);

5. The Asian contagion (1997-1998) including Indonesia, Thailand, South Korea, the Philippines and Malaysia which managed to display deflationary and inflationary symptoms simultaneously;

6. Zimbabwe (2005-2009).

When will we ever learn? Apparently not anytime soon…

June 20 (Reuters) – Yields on Greek and other lower-rated euro zone bonds rose on Monday, after ministers delayed granting emergency loans to Greece and with market tension increasing before a key parliament vote.

The Greek parliament holds a confidence vote on Prime Minister George Papandreou’s new cabinet, formed to stiffen resolve behind austerity measures to win new loans and avoid bankruptcy.

Political backing for more painful reforms is key to secure vital new aid to plug a funding gap next month and a failure by Papandreou to win the vote will increase concerns about Greece’s immediate financing situation.

[source]

June 20 (Xinhua) — The People’s Bank of China (PBOC), the central bank, announced on Monday that it will issue more gold and silver commemorative coins featuring the giant pandas to meet soaring demands for precious metals in the country.

PBOC said the maximum circulation of the one-ounce gold coins with a face value of 500 yuan (77.3 U.S. dollars) will be raised to 500,000 from 300,000 previously set at the end of last year.

The maximum circulation of four other gold coins with different gold purity and face values ranging from 20 yuan to 200 yuan will increase to 600,000 each set from the previous 200,000.

[source]

Gold has been volatile so far this morning, as the initial disappointment that Europe pushed back a decision on Greece until mid-July gave way to renewed assurances that a bailout would be forthcoming. The euro has risen and fallen as expectations of a second Greek bailout have waxed and waned, leading to volatility in the dollar as well.

Forex.com announced to its clients late on Friday that the Dodd-Frank act has prompted them to terminate OTC gold and silver trading for US based clients:

Important Account Notice Re: Metals Trading

We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

via zerohedge

One industry contact with extensive experience on that side of the metals business suggested this morning that it was simply, “Comex using its political power to move everything onto the exchange.” It would seem to me though that a narrowing of the paper/digital options when it comes to silver and gold could very well end up benefit the underlying physical markets. This is a developing story.

• Eurozone April current account deficit widened to EUR 5.1 bln sa from EUR 3.0 bln
• German PPI decelerated to 6.1% y/y in May, down from 6.4% in Apr.
• Japan exports rebounded +2.5% m/m in May, retracing at least a portion of the sharp -13.3% plunge in Mar/Apr resulting from the earthquake/tsunami.

By Rich Miller
June 20 (Bloomberg) — As a Princeton University professor, Ben Bernanke castigated the Bank of Japan in 2000 for a “case of self-induced paralysis” that led to a decade of stagnation. Now, the Federal Reserve chairman may be allowing the U.S. central bank to fall into the same trap after its second round of quantitative easing ends this month.

By all but ruling out another cycle of bond purchases, Fed officials have left themselves with little in the way of policy options to respond to slowing growth and rising unemployment. This raises the risk that the U.S. will remain saddled with what Bernanke himself has called a “frustratingly” sluggish recovery that leaves millions of Americans out of work.

“I worry that QE3 will be hostage to QE2,” said Vincent Reinhart, a former director of the Fed’s monetary-affairs division who is now a scholar at the American Enterprise Institute in Washington. “That may lead to that self-induced paralysis” in further easing policy to aid the economy.

[source]

By Clive Crook
The stalling of the US recovery raises big, scary questions. After a recession, this economy usually gets people back to work quickly. Not this time. Progress is so slow, the issue is not so much when America will return to full employment but what “full employment” will mean by the time it does.

The administration thinks the pace of recovery will pick up soon. Last week President Barack Obama called the pause a “bump in the road”. Others think the slowdown will persist and might get worse, fears that cannot be dismissed. One alarming possibility is that the traits the US has relied on to drive growth in the past – labour market flexibility, rapid productivity growth – might have become toxic. If the US is unlucky, traits seen as distinctive strengths are now weaknesses, and a “lost decade” of stagnation, like Japan’s in the 1990s, might lie ahead.

[source]

By James G. Neuger and Stephanie Bodoni
June 20 (Bloomberg) — Europe faltered in its race to save Greece from default as finance chiefs said further aid hinged on embattled Prime Minister George Papandreou delivering budget cuts in the face of domestic opposition.

On the eve of a confidence vote that threatens to topple Papandreou, the euro area’s top economic policy makers pushed Greece to pass laws to cut the deficit and sell state assets. They left open whether the country will get the full 12 billion euros ($17.1 billion) promised for July as part of last year’s 110 billion-euro lifeline.

“The Greeks have to bring to Parliament their austerity measures and their privatization package and they have to implement those measures,” Luxembourg Finance Minister Luc Frieden told Bloomberg Television as a euro crisis meeting in Luxembourg went into a second day. “Only if those conditions are fulfilled, we can pay out the next tranche and at the same time look for a possible second program to support Greece.”

[source]

By Phil Izzo
June 17 (WSJ blogs) – A double-dip recession is back on the minds of Web denizens.

Google searches for “double dip recession” have shot up in the past two weeks. “In the first two weeks of June the number of Google searches for ‘double dip recession’ by Americans has surged back towards the levels seen when such concerns were rife this time last year,” notes Paul Dales of Capital Economics. He suspects, as was the case in 2010 when the trend last appeared, it will prove temporary.

Though there are arguments for and against Google as an indicator, the rise in searches for “double dip recession” is just the latest in a host of datapoints indicating a growing gloom among consumers. Earlier today, a Reuters/University of Michigan survey showed a drop in consumer sentiment, following on the heels of more pessimistic outlooks from homebuilders and both small and large businesses.

[source]

The Calm Before the Storm

The gold market has been relatively quiet of late, trading within a narrowing range (see Friday’s Morning Snapshot). This strikes me as somewhat incongruous given all of the financial and geopolitical turmoil that continues to unfold.

Renowned NYU economist Nouriel Roubini suggested early in the week that a “perfect storm” was brewing. Roubini cited an economic slowdown in China, trade disruptions associated with the earthquake/tsunami in Japan, the eurozone debt crisis and the US debt/fiscal crisis. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest,” Roubini said.

Throw on top of that the escalating civil unrest in parts of the EU periphery associated with increasingly draconian austerity measures, ongoing populist uprising in the Middle East and North Africa, as well as several wars and the risks to global markets can not be dismissed. And yet gold, the traditional hedge against such risks, remains well contained.

It’s worth noting that gold is well within striking distance of its all-time high at 1574.60, at a time of year when we generally see seasonal weakness. As our Summer Doldrums piece clearly illustrates: Early-summer pullbacks should be viewed as buying opportunities, as “just better than 2/3 of all annual gains over the past ten years in gold have come in the last five months of the year.” That’s a pretty compelling fact. But what if those early-summer pullbacks fail to materialize?

Some are trusting their instincts and taking advantage of the calm before the storm to add to their gold holdings. Our high net worth clients have been especially active. In fact, while the total number of orders is down from the Spring, large individual orders have contributed to near record sales volume.

Some of this activity has to do with portfolio rebalancing; well-healed clients exiting the stock market on the recent weakness. The traditional move when you came out of equities was to simply hold cash, or perhaps move into bonds. That dated strategy simply doesn’t make sense to the smart-money any more: They see that bond yields are artificially suppressed by quantitative easing and they are very aware of the currency risk associated with holding dollars. Such savvy clients are increasingly turning to physical gold as their shelter from the brewing storm.

Many of our regular clientele — aware of the facts laid out in the summer doldrums analysis — simply buy as a matter of course in June and July, regardless of price. They appreciate the ability to spend time with their brokers; to have long conversations about the economy and global markets, or to discuss their specific strategies in great detail. We brokers benefit greatly from these conversations as well, gleaning valuable insights into what high net worth investors are thinking; what they’re concerned about.

Frequently they recall very recent history, when the market was running scared and getting a hold of their broker might have proved very difficult. When they did reach us, we didn’t have the time for expansive conversations and in some instances certain desirous products were simply no longer available. Some of those clients have vowed never to put themselves in that positions again, having to stampede and compete with the thundering herd. They now prefer to take advantage of the quiet times, when product availability is good and premiums are low. This puts them in a very desirable position of being able to focus on their businesses and family when the next market panic arises.

You may recall that Nouriel Roubini foresaw the housing bubble and correctly predicted “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.” So, perhaps the current calm is more accurately the eye of the hurricane, as the coming storm is arguably nothing more than a continuation of what began in 2008. Nonetheless, whether the dark clouds on the horizon are the trailing eyewall or a new storm entirely, now is the time to seek shelter. It is far better to be prepared well in advance than risk being caught out in the storm.

June 17 (HousingWire) – Today’s economy isn’t as depressing as that of the 1930s, but it is as bad as 1983.

The Misery Index, which adds the unemployment rate and level of inflation, rose for the fourth-straight in May to 12.7 and is now at the highest level in 28 years. Economist Arthur Okun launched the index in the ’70s in an attempt to gauge economic hardship.

Unemployment inched up to 9.1% in May, while annual rate of inflation rose to 3.6% as prices climbed across the board, in addition to elevated costs for energy and food. The number of initial jobless claims remained higher than 400,000 for about two months.

[source]

Cabot Money Management’s President & CIO Rob Lutts

View from 3:30 on….

June 17 (Bloomberg) — The International Monetary Fund cut its forecast for U.S. growth in 2011 for the second time in two months, warning that further setbacks to a recovery pose growing threats to the world economy, along with potential contagion from the European debt crisis.

The U.S. economy will grow 2.5 percent this year, down from 2.8 percent projected in April, the IMF said today, citing higher commodity prices and bad weather in the first quarter and a weak housing market. The IMF forecasts 2.7 percent growth in 2012, slower than the previous estimate of 2.9 percent. The Washington-based IMF sees the world economy expanding 4.3 percent this year, down from 4.4 percent two months ago. It left a 4.5 percent forecast for next year unchanged.

[source]

June 16 (Bloomberg) — Alan Greenspan, former Federal Reserve chairman, said a default by Greece is “almost certain” and could help drive the U.S. economy into recession.

“The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.”

[source]

Gold has firmed within the recent range, which is defined by the 1574.60 all-time high from 02-May and the 1462.25 corrective low from 05-May. These two extremes may form the base of a symmetrical triangle pattern. It’s not terribly-well formed, but the recent series of lower highs and higher lows is generally consistent with this very reliable technical pattern. The market consolidates or coils in a narrowing range before breaking out in the direction of the dominant trend. The dominant trend in gold remains decisively bullish.

Renewed optimism about a new bailout for Greece has lifted the euro today, prompting the dollar to retrace a good portion of the gains realized earlier in the week. This weakness in the dollar has helped buoy gold.

• US leading indicator +0.8% in May, above market expectations of +0.2%, vs -0.4% in Apr.
• US University of Michigan sentiment fell to 71.8 in June, below market expectations, vs 74.3 in May.
• Sarkozy and Merkel agree to Vienna-style rollover of Greek debt, but ECB remains opposed fearing such a deal would be deemed a credit event.
• Greek President Karolos Papoulias swears in Prime Minister George Papandreou’s new cabinet following a reshuffle.

By Kathleen Madigan
June 17 (WSJ blogs) – Will this Greek drama go out on a global tour?

That’s the fear as officials in Athens scramble to work out an austerity plan to avoid defaulting on the nation’s sovereign debt while some Greek voters riot in the streets.

Some market watchers worry Greece 2011 could be a replay of Lehman 2008 when it comes to market performance and economic growth. Greece defaults, markets tank, and the global economy spins into severe recession.

…Certainly, there are reasons to worry that Greece’s problems could be the last straw for the recovery, especially because a default could bring the unanticipated. And recent data show the U.S. economy has throttled back significantly in the second quarter.

…The biggest risk, however, isn’t Greece per se. It is the prospect of other peripheral euro members — Ireland, Spain, and Portugal — following Greece down the default path. That cascade effect has to be avoided.

[source]

By JUDY DEMPSEY
June 17 (New York Times) – BERLIN — Germany backed away Friday from a confrontation with the European Central Bank over a new bailout package for Greece, agreeing under pressure from France not to force private investors to shoulder some of the burden.

The German government’s previous insistence on what the finance minister called “fair burden sharing” had renewed market jitters by threatening to derail negotiations on the second rescue, which will be needed to avert another financing crisis next year.

Chancellor Angela Merkel and the French President Nicolas Sarkozy announced the agreement after a two-hour meeting in Berlin.

[source]

PG View: There remains considerable risk that the rating agencies will still view any rollover of Greek debt as a distressed debt exchange and a default.

June 17 (Bloomberg) — Greek Prime Minister George Papandreou fired his finance minister in a Cabinet overhaul aimed at fending off a party rebellion and ensuring the passage of austerity measures needed for a bailout.

Defense Minister Evangelos Venizelos was named to replace Finance Minister George Papaconstantinou, the target of ire among the ruling Socialists for deepening budget-deficit cuts, according to an announcement in Athens today by George Petalotis, a government spokesman. Papaconstantinou will move to the Environment and Energy Ministry.

[source]

The History channel and Popular Mechanics recently teamed up to list the 101 Gadgets That Changed the World.

The smart phone topped the list!

Gold, though not in the gadget category, has become a new fixture in the contemporary portfolio. It represents solid value in a world of unstable contemporary national currencies.

So now the question often arises: “I wonder what gold is doing?”

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To find out what’s behind the gold price action, just scroll down and access Latest Gold News.

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Greek PM Vows to Stay Amid Calls for More Austerity

As yields in Greece and the reset of the EU periphery continue to climb, it would seem that the eurozone debt crisis is coming to a head. The FT heralded yesterday that Disunity deepens Greek debt crisis. That disunity is not just within the Greek government, but among the various stake-holders who can’t seem to agree on a path to solvency for Greece.

source: Business Insider

Yet another “new deal” was proffered by the EU and IMF today, but not surprisingly it comes with new austerity measures to be absorbed by the Greek people. The politically weakened PM George Papandreou is going to have a hard time selling even more austerity to the Greek people, who have already reacted violently to the already severe cuts they’ve had to endure. Rumors that Papandreou would step-down proved unfounded as the embattled PM vowed to fight on today, delaying a promised cabinet shake-up as well. That certainly is not going to do much to quell the civil unrest.

The euro fell to a new 3-week low today as hopes of a palatable resolution to the Greek crisis waned, driving investors into the perceived safety of dollars, yen and Swiss francs. Certainly gold is benefiting from safe-haven flows as well, but they have primarily had an underpinning effect rather than a truly bullish effect, as the dollar and gold tend to be inversely correlated.

Further evidence that the US economic recovery is faltering, along with rising concerns that China may be slowing as well, have tempered inflation expectations somewhat. This week’s sharp drop in oil prices is a good illustration of this, but in the face of diminished price risks and given that we’re in the midst of the summer doldrums, gold remains remarkably buoyant.

Americans should be paying attention to the events in Europe as they unfold, as our situation is not all that far removed from Greece’s. However, the big difference is that we in the US maintain or “exorbitant privilege” — a phrase coined by former French Finance Minster Valéry Giscard d’Estaing in the 1960s — of being the worlds reserve currency. We essentially have the ability to create as many dollars as is necessary to meet any obligation.

In joining the EMU, Greece gave up its ability to print and thereby devalue its currency. While this puts Greece in an untenable position now, the US should be aware that our “privilege” has some very real costs attached to it. Costs that should be every bit as troubling as the massive debt we have accumulated.

June 16 (Associated Press) – ATHENS, Greece — Prime Minister George Papandreou has vowed to stay on and fight to pull his country out of a crippling debt crisis, facing down a revolt in his Socialist party over new but widely unpopular austerity measures.

Papandreou told lawmakers Thursday at an emergency party meeting that he would keep seeking a consensus with opposition parties over the financial reforms that creditors have demanded as part of an international bailout.

Papandreou admitted his government had displayed “mistakes and weaknesses,” but promised a new, stronger Cabinet in a reshuffling.

[source]

PG View: It would seem that recent rumors that Papandreou would step down were unfounded. That, along with a delay in the promised cabinet reshuffle, probably isn’t going to do much to quell the rising civil unrest in Greece.

June 15 (CNBC) –

Yesterday’s big negative miss on the Empire State index set the stage for this disappointment.