By Adam Posen
September 02 (Reuters) — It is past time for monetary policy to be doing more to support recovery. The Jackson Hole conference has come and gone, and no shortage of excuses was provided for central banks to hold their fire — even though most economists acknowledged the grim outlook for the advanced economies.

Too much attention has been paid, however, to the failings of fiscal policies and to the shortfall from effects of earlier quantitative easing. Further asset purchases by the G7 central banks are needed to check not just a downturn, but the lasting erosion of productive capacity and of debt sustainability — especially when even justified fiscal and financial consolidation is undercutting short-term recovery. Easier monetary policy will increase the odds of other policies improving, and those policies’ effectiveness when they do.

It is also past time to stop fearing inflationary ghosts. There is no credible threat of sustained higher inflation in the advanced economies that should restrain central bank action.

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PG View: While official data would indeed suggest that core inflation (excluding food and energy) remains in check, should the inflation genie be released, she may prove extremely hard to get back in the bottle. Clearly some are willing to take that risk.

September 02 (ZeroHedge) — Remember when one month ago the US, to much pomp and circumstance, not to mention one downgrade, announced a grand bargain raising the debt ceiling from $14.294 trillion to something much higher, with a stop gap intermediate ceiling of $14.694 trillion, or $400 billion more. Well, as of today, or less than a month since the expansion, total US debt is at $14.697 trillion. Yep – the total debt is again over the ceiling, which means the US debt increased by $400 billion in one month. Score one for fiscal prudence. And while the total debt subject to the limit is still slightly less, at $14.652, one week of Treasury auctions and will be time for Moody’s to justify again why the US is a quadruple A credit.

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PG View: Yeah, $400 bln just doesn’t last as long as it used to.

September 02 (The Wall Street Journal) — Economists and others weigh in on the unchanged nonfarm payrolls number and steady 9.1% unemployment rate.

–It’s often said when it rains, it pours. That is an apt description of the August employment report and the likely path in the labor market later this year. Given slowing growth in the real economy there is little in the employment report to indicate a pickup in job creating heading into the final 16 weeks of 2011. –Joseph Brusuelas, Bloomberg

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September 02 (NPR) — The unemployment rate didn’t budge in August, according to this morning’s jobs report. Net job growth was zero.

Also basically unchanged: The number of people who have been out of work and looking for a job for six months or more.

More than 6 million Americans are now among the long-term unemployed, up from about 1 million before the recession. The long-term unemployment rate is far higher than it’s been at any time since before War II.

That’s very bad news not just for the unemployed, but for the long-term health of the U.S. economy.

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September 02 (Bloomberg) — Inflation? No, thank you.

We just endured and survived a major political crisis over the possibility that the U.S. government might default on its debts. Most people — other than a few high-stakes poker players on the right wing of the Republican Party — agreed that this would be a terrible thing. But now, a growing number of voices, mainly on the left wing of the Democratic Party but also in the Federal Reserve, are calling for what is in effect default in slow motion. It goes by the name of inflation.

…As it happens, a couple of years of 6 percent inflation is exactly what the leading economist advocating this approach — Kenneth Rogoff at Harvard — recommends. He is joined by Paul Krugman and by a growing number of economic journalists and commentators. Some of these people have been saying that inflation is no threat worth worrying about, because it has not appeared despite circumstances that ordinarily would have produced it. Now they say inflation is no threat because a little of it would actually be a good thing.

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September 02 (USAGOLD) — Gold surged back within $20 of the $1900 level in early New York trading, following another disappointing US nonfarm payrolls report. Payrolls were unchanged in August, well below market expectations of +93k and even below Goldman Sachs’ negatively revised forecast of +25k. The unemployment rate remained at 9.1% as the US moves ironically into the long Labor Day weekend. Expectations of additional Fed measures to underpin the faltering economy have been on the rise since chairman Bernanke’s speech last week in Jackson Hole. Many investors believe today’s dismal jobs print has pretty much tipped that in. The President’s big speech on jobs to a joint session of Congress is scheduled for Thursday evening.

Gold was already elevated in advance of the US employment data, following a raft of bad news out of Europe; most notably the news that bailout talks between Greece and the troika have broken down. Additionally, Finland remains ready to bail on the bailout because its understandable demand for collateral is being rebuffed. EU President Trichet would not rule out the possibility that periphery gold reserves might be in play as collateral for eurobonds, even though the possibility of eurobonds has already been dismisses. That is of course unless a new EU treaty were to be ratified, making eurobonds possible. Something that is now being pushed by German Finance Minister Wolfgang Schäuble, likely because the options to save euroland are dwindling rapidly and global markets are already on tenterhooks.

Risk off. Everyone back into gold!

• US nonfarm payrolls UNCH in Aug, well below market expectations. Both Jul and Aug revised lower combined-58k. Unemployment UNCH at 9.1%.
• US hourly earnings -0.1% in Aug, below market expectations. Average workweek contracted to 34.2, from 34.3.
• UK CIPS construction PMI fell to 52.6 in Aug, vs 53.5 in Jul.
• Eurozone PPI +0.5% m/m in Jul, near consensus, vs 0.0% in Jun; 6.1% y/y, vs 5.9% y/y in Jun.

September 02 (Der Spiegel) — The debt crisis has been a tough test of endurance for Europe. To better face such challenges in the future, German Finance Minister Wolfgang Schäuble wants to forge a new European Union treaty, the mass-circulation daily Bild reported Friday.

According to the report, Schäuble clarified his plan during a closed-door meeting of leaders of his conservative Christian Democratic Union (CDU) and its Bavarian sister party the Christian Social Union (CSU) on Thursday evening. Shifting greater powers over economic and financial policy to Brussels is necessary, he said according to the paper, “even though we know how difficult a treaty change will be.”

Schäuble also acknowledged that such reforms would create a significant divide between the 17 European Union countries that use the euro and the remaining 10 that do not.

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September 02 (The New York Times) — The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

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PG View: I wonder if Warren Buffet was made aware this was coming down before he bailed out BofA last week.

September 02 (AP) — Employers stopped adding jobs in August, an alarming setback for an economy that has struggled to grow and might be at risk of another recession.

It was the weakest jobs report since September 2010. The unemployment rate remained at 9.1 percent.

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September 02 (Financial Times) — Talks between Greece and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, it was announced on Friday, a day after Athens admitted it would miss its budget deficit targets this year.

The talks will resume in 10 days, Greece and the European Union/International Monetary Fund/ECB inspectors said. Greek officials had not previously suggested that there would be a pause in the negotiations with the inspectors, known as the troika.

Without its next tranche Greece could default.

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Greece Denies Troika Talks Break Down

September 02 (The Wall Street Journal) — Finance Minister Evangelos Venizelos Friday said that Greece must avoid taking measures that would further worsen the country’s deepening recession but rejected reports of a break down with international inspectors after they suspended a visit in Athens.

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By Jan Harvey
September 2 (Reuters) — Europe’s most indebted nations are under heavy pressure from their richer neighbours to sort out their finances, but they are unlikely to mimic the impoverished gentlefolk of old by selling off the family silver — or in their case, gold — to do so.

More than 750 tonnes of gold are currently sitting in the state coffers of Portugal, Greece and Spain alone, equal to about 17 percent of the 2010 annual supply of bullion from mining and sales of scrap.

Despite struggling with massive debt burdens and in some cases accepting multi-billion-euro bailout packages, the so-called PIIGS — the countries above, plus Ireland and Italy — have not dipped into their gold reserves to service that debt.

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PG View: Why would they sell their gold in exchange for more paper and promises?

September 02 (GoldCore – via ZeroHedge) — Gold and the Swiss franc are higher today as risk aversion has returned with global stock markets falling on concerns the US employment figure later today will disappoint and confirm that the US economy continues to weaken.

…Today, the President of the ECB, Jean- Claude Trichet did not rule out a gold backed euro bond in an interview with ‘Il Sole 24 Ore’ published on the ECB’s website.

The comments were a response to former Italian Prime Minister Romano Prodi who proposed – in Italian national daily business newspaper ‘Il Sole 24 Ore’ last week – the creation of a euro bond backed by member states’ gold reserves.

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Gold Awaits NFP

September 01 (USAGOLD) — Gold is confined to a narrow range within the broader 1911.69/1702.95 range that was established last week. The recent rebound into the upper half of last week’s range was driven largely by rising expectations that the Fed would offer up additional monetary accommodations, possibly as soon as this month’s FOMC meeting. If the Fed is continuing to “watch the data” as Bernanke suggested in Jackson Hole last week, the argument that further easing is needed has likely gained some traction. Nonetheless, Bernanke expanded the Sep FOMC meeting to two days so that he and the other doves on the committee have more time to arm-twist those troublesome and vociferous decenters.

Today’s weak construction spending data, and softer August ISM print are cases in point. While initial jobless claims fell in the week ended 27-Aug, there was yet another upward revision to the previous week’s data and claims have now come in above 400k for 20 out of the last 21 weeks. In the wake of yesterday’s negative miss on the ADP employment index, the whispers of a miss on tomorrow’s August nonfarm payrolls report are starting to roll in. Consensus had been running around +93k, with some trusted analysts already predicting a rise closer to 50k. Just today, Goldman Sachs lowered their forecast from an already weak +50k to just +25k, citing “the accumulation of evidence of weak hiring in late July and August: a sharp deterioration in perceptions of job availability in the latest Conference Board survey, a drop in today’s ISM manufacturing employment index, another drop in job advertising, and a soft ADP report.”

With the debt debate seemingly behind them — at least for the time being — focus within the beltway is decidedly on jobs. If NFP disappoints tomorrow and the President’s plan for job creation — to be revealed next week — shows little promise of advancing through our hyper-partisan Congress, it may well prove to be the deciding factor when it comes to the likelihood of QE3. The greater the likelihood of QE3, the greater positive influence on the price of gold.

September 01 (AFP) — The Greek finance ministry backpedalled on Thursday after a new budget watchdog released an internal report warning that debt was “out of control” just as officials held critical talks with creditors.

Finance Minister Evangelos Venizelos, who had enough troubles this week explaining Greece’s reform delays and target slippage to auditors from the EU, the IMF and the ECB, attributed the error to inexperience.

…”It is clear that the budget office still lacks this knowledge, experience and responsibility,” the minister said.

…[The State Budget Execution Monitoring Office] said that slippage on meeting deficit targets, exacerbated by a deep recession, threatened to cancel out the benefits of a new EU bailout.

“A significant debt increase, a high primary deficit and the deep recession have boosted to the extreme the debt dynamic, which is now out of control,” the newly-formed State Budget Execution Monitoring Office, staffed by independent analysts, said in a report.

“These developments seem to offset to a great extent the positive impact” of the latest EU loan package of 159 billion euros ($229 billion) agreed last month, it added.

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September 01 (USAGOLD) — Gold is modestly lower, but continues to trade in the upper half of the range that was established last week. The dollar is a little better within its range as the euro fell on weak data, a terrible Spanish 5-year auction and ongoing banking concerns. Eurozone worries sparked a rebound in safe-haven demand for the Swiss franc, spurred on after Swiss Economy Minister Johann Schneider-Ammann said, “We’ll have to keep living with the strong franc for some time.” Nonetheless, CHF remains well off its recent highs versus both the euro and the dollar.

A bit of a mixed bag of US data this morning, but nothing to invite much confidence; except perhaps about QE3.

• US ISM slipped to 50.6 in Aug, above market expectations of 48 (and weaker whisper), vs 50.9 in Jul.
• US construction spending tumbled 1.3% in Jul, well below market expectations of 0.1%, vs big upward revised 1.6% Jun.
• US initial jobless claims -12k to 409k in the week ended 27-Aug, above market expectations, vs upward revised 421k in the previous week.
• US Q2 productivity revised lower to -0.7% from -0.3% previously, below market expectations, vs -1.1% in Q1.
• Generally weak PMIs across Europe. Eurozone Aug manufacturing PMI revised down to just 49.0, lowest in 2-years. UK beats expectations, albeit modestly.
• Switzerland retail sales fell to 1.9% y/y pace in Jul, vs 7.4% y/y in Jun; CHF strength weighed.
• China PMI (CFLP) 50.9 in Aug, vs 50.7 in Jul.
• South Korea (HSBC) PMI fell to 49.7 in Aug, vs 51.3 in Jul; first sub-50 print in 10-months.
• South Korea CPI surged to +5.3% y/y Aug, above market expectations, vs 4.7% in Jul.
• South Korea exports +27.1% y/y in Aug; surplus falls to $0.8 bln.
• Thailand CPI rose in Aug to 4.3% y/y, vs 4.1% y/y in Jul.
• Australia retail trade +0.5% in Jul, above market expectations, vs -0.1% in Jun.

September 01 (Financial Times) — The global manufacturing recovery appeared to have come to a grinding halt in August, according to a raft of activity surveys across Asia and Europe released on Wednesday.

In many countries, the surveys of purchasing managers produced the lowest readings of manufacturing activity, orders and jobs since mid-2009, when the world economy was crawling out of recession.

The weakness came shortly after the crisis over the US debt ceiling threatened a default in the world’s largest economy and continuing turmoil in the eurozone led to a loss of confidence in the sovereign debt of Italy and Spain.

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September 01 (Reuters) — A debt crisis is still gripping the developed world, European Central Bank policymaker Juergen Stark said, adding there was no alternative but for countries to take painful steps to consolidate their public finances.

“The crisis is not over. Not just in Europe is it not over, it is also not over in other regions of the world,” he said, adding the United States had an “enormous” debt problem and lacked the structures to get the problem under control.

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PG View: Don’t look over here. Look over there!

September 1 (Bloomberg) — Bonds beat stocks and commodities in August after Standard & Poor’s decision to strip the U.S. government of its AAA credit rating roiled global markets and made Treasuries the world’s best-performing assets.

The combination of the downgrade to AA+, slowing U.S. growth and Europe’s debt crisis drove investors into the world’s biggest and most-liquid debt market. Treasuries returned 2.8 percent, while the global bond market gained 1.99 percent, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks fell 7 percent, the biggest slump since May 2010, and the Standard & Poor’s GSCI Total Return Index of commodities lost 1.8 percent.

Instead of eroding the value of U.S. government debt, the rating cut sparked financial market turmoil that made Treasuries and the world’s reserve currency favorites among investors, with 10-year note yields dropping to a record low 1.97 percent on Aug. 18.

…Gold futures gained 12 percent, the biggest monthly advance since November 2009. Bullion jumped to a record $1,917.90 an ounce in New York on Aug. 23 as investors sought to protect their wealth against financial turmoil.

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PG View: Bonds Beat All Investments?? And then we discover way down in the story that bonds did not beat gold or some ag commodities. I guess you could justify the headline if you didn’t think gold was an “investment.” Perhaps the Bloomberg reporter views the yellow metal as (gasp!) money.

August 31 (Reuters) — Colombia joined the ranks of official sector gold buyers in July for the first time in 13 years, along with Russia, mirroring the trend among emerging central banks to diversify their currency portfolios.

International Monetary Fund data released on Wednesday showed Russia, which is already the world’s eighth largest official holder of bullion, raised its reserves by 4.42 tonnes in July to 841.131 tonnes, while Colombia added 2.3 tonnes to bring its reserves to 9.14 tonnes, its first increase since March 1998.

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By Mark Gongloff
August 31 (The Wall Street Journal) — Roll up your sleeve, it’s time for a syringe full of fact! Gold has just blown the triple whistle on its best month since November 2009.

The Barbarous Relic gained $200.20 this month, or 12.3%, to finish at $1828.50. That’s the biggest percentage gain since November 2009.

It’s up nearly 29% for the year and 47% from a year ago. It’s just 3% away from its record high.

In accepting this award, gold would like to thank Europe for continuing to not get its act together and the Federal Reserve for keeping interest rates low until the sun goes supernova.

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by Sen. Jim DeMint
August 31 (Politico) — In the run-up to the financial crisis, the Federal Reserve fueled the housing bubble with its easy money policy. Now, we know that after the crisis struck, the Fed secretly propped up elite bankers all the way from Wall Street to Brussels to the Central Bank of Libya.

A Bloomberg news investigation found that while the Treasury Department was pumping $700 billion into banks under the Troubled Asset Relief Program, the Fed was covertly operating its own bailout program – the biggest in American history. The Fed’s Shadow TARP issued $1.2 trillion in loans to domestic and foreign banks from 2007 to 2010, far more than Congress authorized Treasury to spend under TARP.

…Congress eventually approved a partial audit that showed the Fed extended an incredible $16 trillion – more than the entire U.S. economy – in aggregate lending authority to foreign and domestic banks from the end of 2007 to the middle of 2010.

…After the second round of quantitative easing was announced, Chinese Vice Finance Minister Zhu Guangyao said America “does not recognize, as a country that issues one of the world’s major reserve currencies, its obligation to stabilize capital markets.”

German Finance Minister Wolfgang Schaeuble was more blunt, calling the Fed “clueless.”

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August 30 (CNBC) — Global recession in 2012 is “65 to 75 percent certain” and could deteriorate into a lengthy depression, Roger Nightingale, economist and strategist at RDN Associates, told CNBC.

The peak rate of growth for the world’s economy occurred more than 12 months ago and “it carries on going down,” Nightingale said. “We are probably going into negative territory around spring of next year; it is not for certain, but that is the most likely scenario. I would say the recession is 65 percent, 75 percent certain.”

The economist warned that should recession kick in, the global economy might be too weak to generate any GDP growth for years, or even decades.

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